Buy to let returns - what's the latest for landlords?

publication date: Jul 22, 2014
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author/source: Kate Faulkner, Property Expert and Author of Which? Property Books
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Landlord buy to let returns - what's the latest?

In our rental summary, we track returns as well as supply and demand. This helps landlords work out how to keep their rents competitive.

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What’s happening to Capital Growth and Yields?
Acadata/LSL “In May gross yields on a typical rental property have steadied at 5.1%, the same as seen in April. Since property values have risen, this is slightly lower than at this point last year. In May 2013 the average gross yield on a rental property in England and Wales stood at 5.4%. 

 

“However, taking into account price growth alongside void periods between tenants, total 

annual returns on the average rental property have reached a four year high. Total annual 

returns of 12.2% in the twelve months to May are up from 5.3% in the twelve months to May 

2013, and are now at the highest level since June 2010, when total annual returns previously 

peaked at 12.4%. 

 

“In absolute terms this means the average landlord in England and Wales has seen a return 

of £20,133 in the last twelve months, with rental income of £8,107 and capital gain of 

£12,026. (May 14)” 

 ARLA “Compared with three months ago, the average weighted rental return for houses is down from 5.1% to 4.9% and the average weighted rental return for flats is down from 5.3% to 5.2%. These changes reverse the changes seen three months ago. 

 

“The overall average capital asset value of rented houses has risen by 1.3% over the last three 

months, partially reversing the decrease seen three months ago. This rise comes as a result of 

increases in the average value of rented houses for those managing properties in Prime 

Central London (up by 3.5%) and those in the rest of the UK (up by 3.3%). For those in the rest of the South East, average values fell by 2.6%. 

 

“Over the same period, the overall average value of rented flats rose by 6.6%. This increase 

has come as a result of increases in the average values of rented flats for those managing 

properties in Prime Central London (up by 9.0%), those in the rest of the South East (up by 

5.8%) and those in the rest of the UK (up by 0.7%). (Q2 14)” 


Kate Faulkner comments on Capital Growth & Yields: 
“The growth in returns for buy to let investors reminds us that it is typically capital growth where buy to let delivers. The lack of this growth and falls since 2007 mean many landlords are still likely to have not seen great returns unless bought prior to 2005 or own in London. Income returns from property are pretty poor when tax is deducted unless rooms are rented. Buy to let in the main delivers over a 15-20 year period through building up a great capital lump sum. However, investors are warned that it isn’t a ‘guarantee’ to make money from property. Some city centre flats are selling for less than they were bought for in 2000 and others bought at the height of the market are half the value they were in 2006. Investors need to take some quality buy to let advice prior to investing or expanding their portfolio if they want to be successful.” 

What’s happening to demand for rental properties?
“Such is the population growth and lack of new housing supply that even a surge in first timebuyers hasn’t dampened demand for rented properties. It is essential that politicians address this imbalance now. We don’t have time for continued complacency about tackling council waiting lists which have been allowed to grow uncontrollably and not having real strategies in place for ensuring population growth is matched by a growth in new properties.” 

Supply of Rental property
“Although it is great that many one property landlords are out there helping to house people young and old across the UK, this sector cannot be relied upon to house the socially vulnerable. The ‘experiment’ in the 1990s which continued into 2000+ of shifting people from social housing into the private rented sector has been successful for some, but as politicians have failed miserably to regulate this market, socially vulnerable and low paid workers have 
been placed in the hands of rogue landlords and letting agents.” 


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