Rental yields for buy to let landlords in England and Wales remain high

Landlords across England and Wales have seen returns eclipsed by those in London which have seen total annual returns of 14.6% in the 12 months to January 2014, up from 11.4% in the previous 12 months.

While total returns on an average rental property across England and Wales was 8.9%, up from 5.7%, according to the latest  buy to let index from LSL Property Services which owns the UK’s largest lettings agent network, including national chains Your Move and Reeds Rains.

London landlords have seen an average return of £38,104 per property in the capital, or more than five times the total return per property in areas such as the North East and Yorkshire and the Humber.

In England and Wales the total annual returns growth represents an average return of £14,767, with rental income of £7,961 and capital gain of £6,806.

The data also shows that if rental property prices continue to rise at the same pace as over the last three months, the average buy to let investor in England and Wales could expect to make a total annual return of 13% over the next 12 months, equivalent to £22,256 per property.

Gross yields on a typical rental property stand at 5.2% as of January, down slightly from 5.3% in January 2013. However, total returns have been boosted by capital accumulation and lower void periods between tenants.

‘Rental yields remain historically high, and such rental income is still underpinned by a demand driven lettings market. Meanwhile, rising prices are delivering an equity bonus for landlords, considerably boosting total annual returns,’ said David Brown, commercial director of LSL Property Services.

‘Such equity growth is also an important factor for some landlords looking to remortgage existing properties to fund new purchases. As mortgage availability grows and rates seem set fair for the time being, many landlords will continue to expand their portfolios,’ he added.

The index also shows that average rents across England and Wales have risen 1.4% in the past year, to stand at £742 per month in January. Annual rises come despite a seasonal fall in rents between December and January. The average rent across England and Wales fell by 0.4% on a monthly basis.

‘Rents are now rising more gradually on an annual basis, thanks to the efforts of landlords to expand availability of tenancies. However, there still remains a dire shortage of housing in the UK. Powerful incentives for those with the ability to make more homes available are important in easing some of the short term strain for tenants,’ explained Brown.

‘But rents will not fall in real terms for very long while there remains such a severe mismatch between the building of new homes and the number of households looking for somewhere to live,’ he added.

Data reveals that five out of 10 regions saw rents fall on a monthly basis between December and January, in line with a monthly fall across England and Wales as a whole. The sharpest monthly drop was found in the South East, with rents down 1%. This was followed by a drop of 0.9% in London, and a 0.7% fall on a monthly basis in Wales. However, the West Midlands and East Midlands experienced monthly rent rises, up by 0.8% and 0.6% respectively since December.

On an annual basis, the majority of regions have seen rents rise. The South West saw the steepest rent increases, up by 3.7% from January 2013, followed by a 3.2% annual increase in London, and a 3% rise in the South East.

However, four out of 10 regions experienced lower rents on an annual basis. Rents in the East of England have seen by far the sharpest annual fall, down by 3.6% over the last 12 months. This was followed by a 2.8% annual drop in the West Midlands, and a 1.5% fall in Wales.  Rents in Yorkshire and the Humber have also dipped by 1.3% since January 2013.

Beyond the nationwide figures lies an even more complicated picture, according to Brown. He pointed out that local trends can be highly detailed, while dozens of different factors can affect the rent for any given property. ‘Ultimately the ever changing patterns of demand and the availability of local property at any given time will keep very local patterns in a constant state of flux. Some good deals are always there to be had, for tenants and landlords alike, if they have the right information,’ he said.

The index shows that tenant finances have improved since December, with the total amount of late rent across England and Wales falling to £252 million, down £78 million since December 2013. As a proportion of all rent, such tenant arrears now represent 7.4%, down from 9.7% in December, and an annual improvement on late rent in January 2013, which represented 8.1% of all rent.

‘January blues always present a challenge and the last six years of squeezed incomes have made those winter woes all the more difficult. But tenants have shrugged off the worst of the seasonal tenant arrears that we saw in December, and continued a long term downward trend in the level of late rent,’ Brown said.

‘Equally, tenants in good financial shape are good news for landlords. Rental yields are already excellent, but as the chance of late rent declines, the risk associated with such returns is improving dramatically,’ he added.

Article courtesy of PropertyWire

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