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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 yields improve in the North East

Buy-to-let yields in the North East have increased by 0.12% to 5.09% in the first quarter of 2020, research from peer-to-peer investment platform Sourced Capital has found.

At the other end of the spectrum they’ve fallen by -0.22% in London to 4.10%.

Stephen Moss, managing director of Sourced Capital, said: “Turning a profit in the buy-to-let sector remains a tough ask with a number of government changes denting profitability and yields remaining largely flat.

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“With COVID-19 presenting additional hurdles such as rental arrears and longer void periods, many are now turning to alternative options such as the peer to peer sector for a safer, more hands-off investment.

“However, that’s not to say that a buy-to-let property won’t make a great investment should you place your money in the right pockets of the market. Buy-to-let returns are based on fine margins and so an annual increase of 0.7% isn’t as insignificant as it may seem.”

Across England they’ve typically fallen by -0.1% year-on-year.

Looking more locally, Corby has seen an uplift of 0.7% on an annual basis. Charnwood, Newcastle and Exeter have also seen positive growth with a jump of 0.5%.

Harlow in Essex and the Orkney Islands have enjoyed a 0.4% increase, along with Ealing which enjoyed the largest increase of all London boroughs.

BY RYAN BEMBRIDGE

Source: Property Wire

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Increase WIFI Connectivity To Improve Rental Yields

Recent research has shown that buy to let investors can improve their rental yields by ensuring that WIFI connectivity in the property is good.

The research from real estate connectivity certifications provider WiredScore and the HomeOwners Alliance has found that two-thirds of residential developers can rent properties with good connectivity services at a higher price and/or with a greater yield.

It was found that 85 per cent of British renters and homeowners still face connectivity issues and failing services, forcing them to use an additional 2.5GB of extra mobile data each month to compensate for their poor WiFi – this additional cost totals £2.2 billion across the nation.

Despite consumers paying an average of £312 for their home internet service, this additional cost is being incurred by users trying to overcome regular connectivity issues and failing services – typically totalling 20 service breakdowns per month. It’s perhaps no surprise that over a quarter of British homeowners and renters (28 per cent) would not have moved into their property if they’d known about the connectivity issues they face.

There are clear commercial benefits of good digital connectivity services:

  • Two-thirds (61 per cent) of residential developers report they can rent their properties at a higher price and/or with a greater yield
  • Two-fifths (40 per cent) see an increased demand for their properties
  • More than half (56 per cent) report they can rent their properties for longer, due to the improved in-home experience

With new developers making the effort to install greater WIFI connectivity in new buildings, the onus is on the buy to let private landlord to ensure that they can compete on an equal level.

President and EMEA MD at WiredScore, William Newton, commented: ‘Connectivity is critical to almost every aspect of our lives – social, leisure and working – with most adult internet users typically spending 24 hours online each week – almost double the time spent in 2007. The residential development community has long shouldered the important responsibility of maintaining and improving residential digital infrastructure in line with a rapid growth in consumer demand.’

Source: Residential Landlord

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Still places in London offering 5% rental yields

Despite clouds of uncertainty hanging over the London market, there are still pockets of the capital like the E6 postcode in East London that offer rental yields as high as 5%, London sales and letting agent, Benham and Reeves has found.

Benham and Reeves looked at data from PropertyData based on the average property price and rental potential of each postcode.

It found the E6 postcode in East London is the best bet for buy-to-let investors in the capital along with IG11 located a little further east covering Barking – with both offering a rental yield of 5%.

Marc von Grundherr, director of Benham and Reeves, said: “The DNA of the London rental market is so complex that it pays to consider where to invest on the most granular level possible when looking at the buy-to-let market.

“There are a whole host of factors that mean the rental desirability of a property can literally change from one street to the next but one of the best starting point to work from is the rental yield available.

“Despite the government’s attempts to dampen the appetite of the sector it remains a lucrative business and for those with the time to commit to it, there are plenty of buy-to-let honey pots out there that will bring a great return on your investment.

“Of course, London’s more prime postcodes are always a safe bet, attracting investment due to their prestigious image and positioning.

“While we may have seen some decline in price growth due to political uncertainty, they remain very much in demand from a rental point of view and so for those with the budget to buy there, a return isn’t hard to come by.

“They also offer better capital growth then London’s peripherals and for those not completely dependent on yield but preferring to opt for more long-term growth, inner London is still the go to place to invest in the capital’s buy-to-let market.”

In fact, this eastbound stretch of London dominates the top 10 most lucrative London buy-to-let postcodes, with RM8, RM9 and RM10 also amongst the best with rental yields of 4.9%.

N18, which straddles the North Circular, is one of the only postcodes outside of East London to make the list with a rental yield of 4.8%. RM13 ranks next with SE28 the only postcode south of the river to appear. E15 and EN3 complete the top 10.

Outside of London, the best in Britain is the L7 postcode in Liverpool with an average price of just £105,000 the area offers an average rental yield of 10.7%.

This is closely followed by the neighbouring L6 postcode where yields are currently 10.4% with Middlesbrough, Manchester, Bradford, Sunderland, Newcastle, Sheffield and Nottingham also home to some of the best postcodes for the highest rental yields.

By Michael Lloyd 

Source: Mortgage Introducer

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Rental Tracker Reports Buy To Let Rents Up

The latest Your move England and Wales Rental Tracker for December has shown eight regions post annual rental increases.

Despite the Christmas period often registering a slowdown as tenants are reluctant to move over the festive season, the rental tracker showed that 2018 bucked the usual trend with rental prices rising on both a monthly and annual basis.

Across all of England and Wales rental prices rose by an average of 1.8 per cent throughout the last year, finishing up at an average of £865 per calendar month (seasonally adjusted).

The strongest annual rent inflation was seen in the South West according to the rental tracker, while on a monthly basis in December the West Midlands posted the strongest performance.

Annual growth in the South West was measured at 4.1 per cent to reach an average monthly rental of £702 per calendar month. Three regions still have higher average rents than the South West, though average rents dropped in two of those regions.

The East of England has an average rent of £881 per calendar month, but this represents an annual fall of 1.4 per cent compared to December 2017.

The South East of England saw rates continue to rise by 1.2 per cent according to the rental tracker, to just short of the £900 mark at an average of £897.

There was good news for buy to let property investors when it came to yields, with the rental tracker finding each of the ten regions recording the same average yields as in the previous month of November.

Average rental yields across England and Wales also remained the same at 4.3 per cent.

The North East and North West regions continue to offer the best rental yields for landlords, with yields of 5 per cent and 4.8 per cent respectively.

National Lettings Director at Your Move, Martyn Alderton, commented: ‘While the rental market tends to wind down as we reach the end of the year, there were still some positive advancements this year, with prices rising in all but two regions.’

He continued: ‘While landlords in most areas saw their yields squeezed in 2018, there was good news as returns held firm between November and December.’

Source: Residential Landlord

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Best Investment Property For Rental Yields

Buy to let investors are always looking for the best rental yields, so what type of properties can provide the best rental yields at the moment?

According to data from online buy to let agency yieldit, three out of the top five highest-yielding properties were houses with three bedrooms or more, producing net rental yields of up to 11 per cent.

Houses with three bedrooms or more are able to attract multiple tenants or larger families, and also tend to be freehold and therefore have no service charges attached that need to be deducted from the net rental yield.

In fact, houses as a whole came top for rental yields at an average of 6.4 per cent, followed by studios at 5.3 per cent and apartments at 4.9 per cent.

When it came to apartments, one-bedroom apartments were found to be a better investment than two-bedroom, with average net rental yields of 5.4 per cent compared to just 4 per cent.

One-bedroom apartments without parking were found to have higher rental yields (5.5 per cent) than those with parking (5.2 per cent), likely down to a lower purchase price.

Head of Sales at yieldit, Ryan Hughes, commented: ‘Deciding on what type of property to invest in is one of the biggest choices a landlord has to make. Houses suitable for families remain a popular choice, and yields can be significantly higher when you remove costs like ground rent, service charge and self-manage – however it’s important to note that this type of property might require more work and unexpected maintenance costs could affect annual returns.’

He continued: ‘For those looking to invest in apartments, the data suggests that there is a growing demand for one-bedroom apartments without parking. As environmental issues become more prevalent, we can expect to see tenants opt for more environmentally friendly ways to travel and an unwanted parking space might push up the price for renters.’

Source: Residential Landlord

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Nottingham postcode has strongest buy-to-let yield

Nottingham postcode NG1 is offering the highest rental yields in England, report from credit eligibility and comparison firm TotallyMoney has found.

Nottingham properties provide a yield of 11.99%, with an average asking price of £152,631 and monthly rental value of £1,525.

Other postcodes with strong yields include L7 in Liverpool (9.79%), TS1 in Cleveland (9.45%) and L1 in Liverpool (9.33%).

Mark Moloney, TotallyMoney’s head of brand and marketing communications, said: “With students flocking to university cities year after year and looking for a place to live, it’s no surprise the student market is a dependable one for landlords.

“Since so many students are looking for accommodation, landlords may use this as an opportunity to drum up competition between them.

“But, due to the tenant fee ban, changes in mortgage tax relief, and tighter buy-to-let lending criteria, rental profits are now being squeezed more than ever. To maximise their returns, landlords need to be savvier — and that’s where our map and mortgage comparison tool can help.”

The worst postcodes in terms of yield are CW12 in Crewe (1.88%), HP9 in Hemel Hempstead (1.91%) and N6 in London (1.93%).

Source: Mortgage Introducer

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The North West and Scotland have the best rental yields

The North West is the top hotspot for rental yields with an average yield of 5.4%, followed by Scotland with 5.3% and Yorkshire and the Humber with 4.9%, Shawbrook Bank has found.

Lower property prices mean it is easier to achieve better rental yields and the city is attracting students and employees from all around the country. The average UK house price is currently £228,000, which is 43% higher than the average house price in the North West – £159,000.

Emma Cox, ‎sales director for commercial mortgages, said: “Landlords have had a rough ride over the past few years with multiple tax changes, but our research shows that it’s not all doom and gloom for potential investors in 2018.

“Lower rental yields in London and affordability constraints for investors has driven interest North, where borrowers are chasing the yield and heading to locations with lower average house prices.

“There are still interesting times ahead for savvy investors and good investment opportunities remain.

“However, when landlords invest far away from their home turf, they can run the risk of falling foul to local knowledge.

“Smarter local investors may be seeing an opportunity to divest themselves of their less desirable housing stock, so it’s important for buyers to do their research to make sure they understand the local supply and demand before investing.”

The ‘UK Buy to Let’ report, produced by Shawbrook Bank and compiled by the Centre for Economics and Business Research (CEBR) has predicted annual property price inflation to be more subdued in the five years up to 2023 than over the last few years.

The report forecasts average annual house price predictions for the years 2017 to 2023 to be at 4.5%, compared to an average of 7.0% for the high-growth years of 2014 to 2016.

Stretched affordability ratios, years of weak wage growth and the prospect of further interest rate rises all weigh in on the outlook for house prices in the UK for the next few years.

House price growth has slowed in the capital particularly, with Brexit and the resulting uncertainty regarding the future of the financial services sector in the City of London looming over activity in the prime end of the market as have higher stamp duty land tax rates.

The report expected price growth in London to continue to trail behind the rest of the country for the next two years.

Furthermore figures from estate agent Aston Chase already show the percentage of high-end purchases from overseas in London’s most expensive postcodes dropping from 44% in 2016 to 35% last year.

Source: Mortgage Introducer

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Lack of supply pushes rents outside of London to £800 per month

Typical asking rents outside London have hit £800 per month for the first time.

There was a quarterly rent rise of 0.8%, the biggest jump recorded in this time of year since 2015.

Notably there are 8.7% fewer rental properties available compared to this time last year and 19.4% fewer in London.

The slowdown in the buy-to-let market has contributed to this lack of choice, as there was a 14% drop in mortgage approvals compared to the same period last year and a 53% fall from three years ago.

Miles Shipside, Rightmove’s commercial director and housing market analyst, said: “Rental demand is currently outstripping supply in many locations, especially in the capital.

“The exit of more landlords from the buy-to-let market in recent years has been due to a raft of different factors, from the more onerous tax regime and more stringent borrowing criteria, to the higher stamp duty on second home purchases and extra legal obligations.

“What we’re left with is a lack of available homes for tenants looking to find their next place to rent, meaning that when the right kind of property does come along it isn’t sticking around for very long before it’s snapped up.”

Shipside added: “Although some of the shortfall in supply will be met by quality housing provided by Build to Rent schemes in the coming years, it’s likely stock shortages will remain in areas with a high concentration of renters.

“Given this backdrop and rents likely to rise, private landlords should try and look beyond the current challenges if they can and stay in the sector.

“If they concentrate on improving the spec of their existing properties and buy better quality accommodation to add to their portfolios, tenant demand should steadily improve rental yields.”

Source: Mortgage Introducer

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Record proportion of landlords made a profit this quarter

Almost nine in 10 (88%) landlords have made a profit in in quarter three from their lettings activity, up by 2% from quarter two, BM Solutions has found.

The quarterly BM Solutions/ BVA BDRC Landlords Panel found that active landlords haven’t experienced any increased financial difficulty this quarter, with the overall landlord profitability index reaching an historic high of +85.

Phil Rickards, head of BM Solutions, said: “Despite many recent challenges to the buy-to-let market, it’s encouraging that more landlords have made a profit from their buy-to-let properties this quarter, and that landlords are feeling slightly more upbeat when it comes to the near-term prospects for rental yields, the UK Private Rental Sector (PRS) and their own letting business compared to Q3 last year.

“For those speculating about the future of buy-to-let, the figures supporting tenant demand should help to dispel this myth.

“Considering the much talked about shortage of housing supply, it is vital that we continue to support a healthy Private Rented Sector and with tenant demand scores improving, or remaining stable across all UK regions, it is clear that the PRS still has a very important part to play.”

Maintaining the positive outlook, landlords are feeling slightly more upbeat when it comes to the near-term prospects for rental yields, the UK private rental sector and their own letting business compared to Q3 last year.

However, they are feeling less confident year-on-year when it comes to the prospect of capital gains and the UK financial markets. Landlord confidence in their own letting business remains 7% above the historic low of 36% recorded in Q2 2017.

The average rental yield dropped this quarter from 6.2% to 5.9%. This follows the 0.4% rise recorded in Q2, when average rental yields were at their highest point since Q4 2014.

Landlords operating in the North West and Wales are currently generating the highest yields at 6.7% and 6.3% respectively. Rental yields are the lowest in Central London (5.3%) and Scotland (4.7%).

Tenant demand has increased to the highest level recorded since Q2 2017, but there are regional variations.

The proportion of landlords reporting a drop in tenant demand is now at its lowest point since the end of 2016, falling 8% from last quarter.

Unsurprisingly, Central London has seen a 9% rise in the proportion reporting increasing demand for rental properties and a 14% fall in the number of landlords who feel that demand has decreased in the last three months.

A third of landlords raised rents over the past 12 months, representing a slight increase from quarter two.

There has also been an increase in the proportion planning to increase rents in the next six months, reaching 27% from 24%, whilst there has been a fall of only 4% in landlords planning to reduce rents.

More landlords are also seeing rents rising in the areas where they let properties, with an increase of 9% from quarter two.

Four fifths (82%) of landlords expected their mortgage provider to increase their mortgage interest rate due to recent base rate rises.

Source: Mortgage Introducer