Rental Yields to Fall Below Five-Year Average This Year

Rental yields will fall below the five-year average of 13% this year, warns estate agent Carter Jonas.

However, the research arm of the agent insists that rental yields will be sustained in 2017 by a reduction in housing supply and moderate house price growth. It predicts total returns of 5.6% for the year.

Darren Yates, Head of Research at Carter Jonas, reports that the property market has been affected by Stamp Duty changes that have reduced the appetite of smaller investors in particular, with many anticipating higher tax bills as the phased removal of mortgage interest tax relief begins in April.

He says: “With weaker capital value appreciation forecast over the coming year, investors are likely to adopt a more income focused approach to residential property. By focusing on areas that benefit from a balance of strong rental yields and growing local economies, investors can ensure good returns.”

Yates predicts that while Brexit negotiations are likely to dominate the political and economic landscape for the foreseeable future, the UK property market is coming to the natural end of a long growth cycle that has also contributed to lower forecasts for rental yields.

He insists: “Total returns are forecast to moderate across the board, but property remains an attractive proposition for many investors compared with other asset classes over the medium to long-term.

“Property yields continue to offer a significant margin over bonds and equities, as well as delivering a stable income with the ability to add value through proactive asset management.”

Yates’ warning concerning rental yields arrives as HomeLet reports a slowdown in rental inflation. The firm expects rent prices to hit an affordability ceiling in the near future, with warnings of tenants struggling to pay higher prices.

Although rent prices are still increasing and are due to surge following a series of measures affecting landlords’ finances, notably the reduction in mortgage interest tax relief, it seems that yields will not remain so strong.