BTL yields still strong despite dip in transactions

New figures from BM Solutions have revealed that BTL investors earned an average gross rental yield1 of 5.3% in the second half of 2016.

Related topics:  Landlords
Warren Lewis
3rd April 2017
50s
"Rental yields remain strong, still offering investors high real returns"

With annual consumer price inflation averaging just 1.0% in the same six-month period, landlords were provided with a healthy real return of over 4% on their investment. The data found that during the same period, they were earning an average rental income of £7662 per month from their property. The North leads the way on yields, but average rents in London more than twice the national average

There is a distinct North-South divide with the highest yields in the North (7.0%), followed by Northern Ireland (both 6.5%) and North West (6.4%). The lowest rental yields are in London (4.4%), followed by the South East and the South West (both 4.9%).

The average rent in Greater London remains significantly higher than elsewhere in the UK, at £1,591 per month. The average monthly rent in the capital is 108% higher than UK average of £766 and 45% above that in the South East (£1,095) – the next highest region. Northern Ireland has the lowest rent in the UK, at an average of £437pm, around a quarter of the London average.

Buy-to-let transactions fall significantly   
 
Market data for buy-to-let property purchases with a mortgage in the second half of 2016 showed transactions falling by 41% to 38,3003 from 65,100 in H2 2015. These are the lowest six monthly transaction numbers since 36,600 was recorded in H1 2013.

Changes in stamp duty rules and the tax-deductibility of mortgage payments for landlords appear to have weighed heavily on the market4, distorting the normal pattern of activity in 2016. Overall, buy-to-let purchases with a mortgage in 2016 were 13% lower than in 2015 at 102,100; transactions are still 44% below the pre-housing downturn peak of 183,280 recorded in 2007.

Phil Rickards, Head of BM Solutions, said: “Rental yields remain strong, still offering investors high real returns. Typically buy-to-let investors in northern areas tend to benefit from lower property values providing higher yields, whereas southern regions have the lowest yields given the higher housing costs.

In the second half of 2016 the market slowed with buy-to-let transactions falling by 41% compared to the same period a year earlier, as tax changes and stamp duty rules have inevitably left an imprint on the market.

However, demand for rental properties remains high and returns have remained strong in the past six months despite the challenges that have faced the market during that time.”

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