The average monthly house rent in England and Wales increased by 1 per cent to £725 in July 2012, according to the latest buy‐to‐let index from LSL Property Services, based on analysis of approximately 18,000 properties.

The pace of annual rental inflation has also increased by 2.9 per cent from 2.4 per cent in June.

On a monthly basis, the largest increase in rents was in the south-east, where costs grew by 2.2 per cent. Prices in the west Midlands rose by 1.8 per cent. Rents dropped by 0.4 per cent in both the south-west and the east of England. London’s rents hit a new high for the third consecutive month, following a monthly 1 per cent rise to £1,057.

On an annual basis, rents declined by 1.2 per cent in the south-west and 0.4 per cent in the east Midlands. The steep monthly increase in rents in the south-east increased annual rent inflation to 4 per cent in July. However, rents are still rising fastest on an annual basis in London, with rents in the capital climbing by 4.8 per cent, compared to 4 per cent in June.

David Newnes, director of LSL Property Services said:

The backlog of frustrated first‐time buyers in the private rented sector showed no sign of clearing in July – in fact, it is still growing. As lending to those without substantial deposits remains depressed, demand for rented accommodation can only go one way in the long‐term – providing further upwards momentum for rents.

The rental market is also entering its summer peak, as recent graduates and those with new jobs begin to look for new accommodation. With more tenants on the move, alongside long‐term underlying demand, fierce competition for properties is enabling landlords to increase rental prices to new highs.

Landlords saw an average total annual return of 4.5 per cent on a rental property in July. This represents an average return of £7,459, with rental income of £7,763 and a capital loss of £305.

If property prices maintain the same trend as the last three months, an average investor in England and Wales could expect to make a total annual return of 8.3 per cent per property over the next 12 months – equivalent to £13,647 per property, assuming house prices change at the average rate of the last three months and they achieve the average yield of 5.3 per cent.

Tenant finances deteriorated for a second consecutive month in July, with 9.3 per cent of all rent late or unpaid at the end of the month, an increase from 9.2 per cent in June. In total, unpaid rent amounted to £295m, 2 per cent more than the £289m late or unpaid in the previous month.