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Buy to let – Rental yields reach three year high

During the first quarter of 2021 average rental yields have increased to 6.0%, the highest recorded in three years, research from Paragon Bank has revealed.

Rental yields have climbed by 0.2% from 5.8% in Q4 2020 to 6.0% in Q1 2021. This represents a year-on-year increase of 0.7% after landlords said they were able to generate average yields of 5.3% in Q1 2020.

As part of a survey of just under 900 landlords, carried out by BVA BDRC on behalf of Paragon Bank, landlords were asked what rental yield they currently receive, taking into account rental income as well as any mortgage, maintenance and other costs associated with running their letting portfolio.

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The highest average rental yields are currently achieved by those managing lettings businesses in the South West (6.7%) and North East (6.6%). Landlords with property in Central London continue to achieve the lowest yields at 5.4%, due to higher average property prices in the capital.

Correlation between typical yields generated and portfolio sizes were also identified after single property landlords recorded average yields of 5.7%, while landlords who operate portfolios containing 20 or more properties responded saying they are able to generate average yields of 7.1%.

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Richard Rowntree, managing director for nortgages at Paragon said: “Rental yields are a key measure for landlords so it’s encouraging to see them indicate being able to generate average yields of 6.0%.

“The fact that this is a 3-year high and is being reported alongside continued high levels of tenant demand suggests that the private rented sector has bounced back well from the Covid-19 pandemic and is actually stronger as a result of providing stable homes for tenants during the challenges of the past year or so.”

Source: Mortgage Introducer

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Year-on-year yield strengthens in majority of UK regions

Rental yields have been strengthening in a majority of UK regions in Q3 according to the latest buy-to-let rental barometer.

The barometer shows rental yields on residential buy-to-let properties were 6.4% across England, up 0.4% from the 6% achieved in the third quarter of 2019.

The North East of England recorded the top rental yield regional figure for the quarter, up 2% year-on-year to 8.8%, whilst only the North West and the East Midlands showed slight drops in rental yields.

Last quarter only three regions posted positive rental yields over the period however seven regions, including the North East, Yorkshire and Humberside and the West Midlands, all posted increases.

Fleet said the overall data showed a more positive picture than three months ago, with a greater number of transactions and rental valuations “showing the strength of the private rental sector during the summer and through into autumn”.

The barometer highlighted the impact COVID-19 may potentially have on rental property within, and around, city centres with potentially tenants looking to live further away from those areas.

It suggested that curbs on foreign tourism may bring a greater supply of short-term lets to market in certain regions however an increase in ‘staycationing’ may ensure yields are not unduly impacted by the greater number of properties available.

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As with Q2 figures, this Q3 iteration of the Barometer does not include Wales as different lockdown rules apply.

Steve Cox, distribution director of Fleet Mortgages, said: “It’s clearly positive to see the majority of regions in England posting increases in rental yields, and those regions which have showed a very slight dip were already at relatively high levels to begin with.

“We learnt from the post-credit crunch period over a decade ago that rents are not as susceptible to a recession as property prices, with many occupants more willing to opt for the shorter-term financial commitment offered by renting than longer-term property ownership.

“While the economic backdrop is not pretty with the ongoing recession and uncertainty about the true impact on employment levels suggesting a negative outlook for rental demand, the early indications – as evidenced by our Barometer – are more promising with no suggestion of sharp falls in rental yields.

“Perhaps this is a result of pent-up demand and more households being formed as a result of the lockdown – we will get a better idea of the sustainability of this in the coming months.

“What we may however see, is further structural changes in rental demand, particularly in urban centres with tenants – who can now work from home – feeling they are no longer tied to a property near to the office, and may look further afield where they might get more for their money.

“However, we have not yet seen any evidence to suggest this is becoming a trend.

“Demand for rental property is clearly holding up in most regions and the underlying demographics suggest that property investment will remain a good choice in the years ahead.

“Within a shorter time-frame, the fact that – in England at least – the stamp duty holiday is available to landlord borrowers has undoubtedly been a factor in the increased interest in property investment purchases, with both new and existing landlords looking at the opportunities available, and seeking to secure the savings that are available from the holiday.

“Our next iteration of the Barometer will give us more evidence on the robustness of rental yields and whether the potential impacts of COVID-19 on households and living arrangements are playing out as they are perceived to be.”

By Jessica Nangle

Source: Mortgage Introducer

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Buy To Let Rental Yields Highest In The North

Buy to let rental yields have been shown to be highest in the North of England, according to a new buy to let index launched by Fleet Mortgages.

The new index found that buy to let rental yields in the north rose the most in the final quarter of 2019, as demand from prospective tenants continued to heavily outstrip supply in the region.

Buy to let rental yields in the north of England reached an average of 9.1 per cent in the fourth quarter of 2019, up from 6.5 per cent in the fourth quarter of 2018.

Landlords in Greater London also saw their buy to let rental yields grow over the same period, enjoying a raise of 0.3 per cent, from 4.8 per cent to 5.1 per cent, while property investors in the South West saw their buy to let rental yields remain steady at 5.5 per cent.

Overall yield growth for England and Wales as a whole rose 0.7 per cent, from 5.4 per cent to 6.1 per cent, according to the index.

The only region where landlords suffered a fall in buy to let rental yields was the North West where they dropped by 0.1 per cent but continue to offer a healthy average return of 7.4 per cent.

Distribution director at Fleet Mortgages, Steve Cox, commented: ‘Clearly, the market has shifted over the past 18-24 months as landlords get to grips with the increased costs that come with private rental sector activity, in particular the phased-in changes to mortgage interest tax relief for individual landlords.

‘Landlords now tend to look differently at their properties, with many converting single-tenancy properties into multi-tenant ones in order to secure better yields.’

He concluded: ‘These higher yields are needed in order meet those growing tax liabilities, but to also offset the increased cost of acquiring tenants and regulation. Examples of these changes include more properties being converted into self-contained flats rather than keeping the property as a larger family home.’

Source: Residential Landlord