Landlords facing slimmer yields as house prices soar

Landlords facing slimmer yields as house prices soar

Resent research shows that house prices are rising faster than rents, leaving buy-to-let investors with slimmer yields compared to previous years. With soaring house prices continuing in the first few months of this year, yields could fall further according to The Online Letting Agents.

Rents are not growing at the same speed as property prices resulting in slimmer potential yields for landlords increasing their portfolio. According to BM Solutions, the average rental yield fell slightly in the second half of 2013, from 5.6% to 5.5%.

The research also found the slimmest rental yields are found in London at an average of 4.8%. This is despite the average rent standing at £1,417 per month in the capital – 102% higher than the national average of £701. Properties in the North and Yorkshire and Humber provide the biggest chance of higher yields, with both regions offering a 6.6% return. Renters in these areas pay roughly £500 per month, nearly a third of the price of people in the capital.
But house prices are even further apart. Recent figures from the Land Registry revealed the average property value in London is £409,881, compared to £98,292 in the North East.

This means more investors may be turning to the buy-to-let market for capital growth rather than seeking income from rents.

Eleanor Carroll, director of The Online Letting Agents, said: “Yields have fallen as house values have risen. During the aftermath of the financial crisis, the reverse happened - as capital values plummeted, rents still went up.

“The figures show that landlord’s average yield has remained static, despite rent rises. This is a result of the fact that the average price of a typical buy-to-let property has grown marginally faster that average rents.

“Despite slimmer yields, buy-to-let has been booming over the last 12 months and rising house prices are good news for long term investors, who will reap the benefits of their investment in years to come.
“Landlords are currently benefiting from record low mortgage rates, with banks eager to snap up the less risky borrowers with rock-bottom deals. Transactions are growing by 28% to 46,430 in the second half of 2013 from 36,400 in the same period the year before.”