UK landlords likely to see buy to let rental yields fall

UK house prices rising faster than rents could result in yields for buy to let landlords becoming slimmer than in previous years, it is claimed.

The Online Letting Agents points out that according to data from BM Solutions the average rental yield fell slightly in the second half of 2013, from 5.6% to 5.5% 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, some 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% 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.

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

‘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,’ said Eleanor Carroll, director of The Online Letting Agents.

‘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,’ she explained.

‘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,’ she pointed out.

‘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,’ she added.

Overall, the average monthly rent paid in Britain increased from £674 per month in the second half of 2012 to £701 for the same period in 2013, or a 4% rise. However, property prices have soared far faster according to a slew of house price indexes.

For instance, the Halifax building society has recently said that house values were up 8% in a year, double the growth of rents. It also said last month that properties have added more than £6,000 in value since December 2013.