In our rental summary, we track what’s happening to demand and supply as well as returns for landlords – this helps you know whether rents can go up or need to be kept competitive.
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Capital growth and yields for landlords
Acadata/LSL “The gross yield on a typical rental property in England and Wales for July stands at 5.1%. This represents a fall of 0.2 percentage points since July 2013 when the gross yield on a rental property averaged 5.3%. However, yields are steady on a monthly basis, at 5.1% over the past six months. Taking into account price growth alongside void periods between tenants, total annual returns on an average rental property stands at 10.3% in the twelve months to July. This is up from 6.1% in the year to July 2013, but represents a moderation on a monthly basis, down from 11.3% in the year to June 2014.
“In absolute terms this means the average landlord in England and Wales has seen a return, before any mortgage payments or other deductions, of £17,307 in the last twelve months. This is made up of rental income of £8,168 and an average capital gain of £9,140.
“Looking ahead, 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 8.5% over the next year, equivalent to £15,050 per property. (July 14)”
Kate Faulkner comments on Capital Growth & Yields:
“Capital growth returns are definitely on the up for landlords – albeit mostly at a modest level outside of London. However, what people need to remember is that any capital gains and yields quoted are ‘gross’ ie it’s the business equivalent of turnover as opposed to profit. So they don’t include the cost of refurbishment and maintenance or any tax due, such as 20-40% on net rental income. At a 5% yield, with a 75% Loan to Value, net yield before tax would be less than 2% if you were a 20% tax payer. Any profit could be wiped out at this level with a major renovation cost such as a new boiler.
“The good news for tenants in the run up to Xmas is most landlords aren’t looking to increase their rents this year.”
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Demand for rented property
All the reports are saying that demand is on the up from a tenant perspective – good news for landlords and potentially good news for newbie buy to let investors. What’s clear though is despite the growth in demand, we aren’t seeing huge rises in rents which we see in the unbalanced property price market.
Supply of rented property
With a lot of a ‘good news’ stories around buy to let at the moment, attractive financing and the prospect of some years of property price growth, existing landlords are expanding their portfolios where they can and new landlords are coming onto the market to benefit from the current upswing in prices. Unfortunately, too many would be landlords and indeed the retail banks (not the buy to let finance specialists) are coming into the market irrespective of whether the landlord will let them legally and whether they meet the investment objectives of the individual.
Download the full report here
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