Posts with tag: buy-to-let returns

Rental Yields to Fall Below Five-Year Average This Year

Published On: January 11, 2017 at 10:44 am

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

Rental Yields to Fall Below Five-Year Average This Year

Rental Yields to Fall Below Five-Year Average This Year

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.

Returns on buy-to-let property rise year-on-year

Published On: May 11, 2016 at 9:29 am

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New data shows that total returns for buy-to-let property in England and Wales increased substantially in the year to March.

According to figures in the Property Partner residential market index, overall returns on buy-to-let increased to 9.57% during the twelve months.

Ups and downs

The Index combines both rental income and capital growth to gauge the total rate of return on residential property over a period of time. Results are generated by research carried out by Property Partner and Office for National Statistics data.

Quarterly, buy-to-let portfolios were up by 2.31%, despite falling by 0.31% month-on-month.

The year-on-year rises recorded were lead by London, where buy-to-let returns increased by 16.49%. The capital was followed by the East of England, where a rise of 13.18% was recorded. Next came the South East (12.1%) and the East Midlands (8.59%).

In the North West, there was a rise of 8.44% and 8.42% in the South West. The West Midlands saw an increase of 6.08%, Yorkshire and the Humber 4.51% and the North East 2.57%.

Returns on buy-to-let property rise year-on-year

Returns on buy-to-let property rise year-on-year

Stamp Duty Rises

Rob Weaver, Property Partner’s director in investment, feels the strong yearly growth was driven by investors rushing to beat the Stamp Duty surcharge increase deadline.

Weaver notes, ‘this was especially true of London, where annual returns were in double digits, reaching an eye-watering 16.5%. The East was strong too and from first hand experience the Northern Powerhouse regeneration plan is boosting investment activity in the North West and in particular Manchester.’[1]

‘What’s clear is that regional disparities in the housing market are widening, with Yorkshire and Humberside and the North East regions looking fragile,’ he continued.[1]

Referendum caution

Mr Weaver also pointed out that would-be investors are exercising caution ahead of the EU referendum in June. He went on to say however that, ‘the fundamentals of high employment, wage growth, cheap borrowing and the chronic shortage of supply remain in place and are positive.’[1]

[1] http://www.propertywire.com/news/europe/englandwales-buy-let-2016051011897.html

Buy-to-Let returns highest for 14 months

Published On: February 19, 2016 at 12:39 pm

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The most recent Buy-To-Let Index from Your Move and Reeds Rains has indicated that returns from buy-to-let property are soaring.

Data from the report shows that returns currently stand at their highest level since November 2014.

Growth

Looking into both rental income and capital growth, the average landlord in England and Wales has seen total returns of 12% in the year to January. This is a rise from the 11.2% recorded in the twelve months to December and represents a fourteen month high. In November 2014, returns stood at 12.3%.

In absolute terms, this means that the typical landlord in England and Wales has seen a return of £21,988 in the last year, before any deductions such as mortgage payments.

Of this, the average capital gain totalled £13,594, with rental income making up £8,394 over the same period.

Rental yields have proven to be sturdy when faced by price increases. The gross yield on a rental property in England and Wales remains steady at 4.9% in January, as it was in December 2015. Annually, this was slightly less than the 5.0% seen in January 2015.

‘Picking up’

‘Buy-to-let returns are building and property prices are picking up-as the housing shortage across the UK intensifies,’ observes Adrian Gill, director of estate agents Reeds Rains and Your Move. ‘Landlords’ balance sheets are looking healthier than at any point since 2014 and property investors are looking at an excellent rate of return from their portfolios. With house prices rising rapidly into the New Year, this acceleration will be a welcome addition to the wealth of landlords on paper, while solid rental yields are underpinning total returns pushing well into the double digits.’[1]

Buy-to-Let returns highest for 14 months

Buy-to-Let returns highest for 14 months

‘Stamp duty premiums on new buy-to-let purchases are the rhino in the room-everyone is talking about the 1st April deadline and the extra purchase costs are perceived by some commentators as potentially hazardous. But this is a little simplistic. Landlords are long-term investors and generally take good advice before making a new purchase, while the real changes will come when some landlords see gradual changes to their tax relief on mortgage interest. The rules around UK property are changing-but there is no bull in the buy-to-let china shop,’ he continued.[1]

Shifts

Mr Gill believes that, ‘in 2016, the big shift is likely to be in favour of existing landlords, potentially at the expense of those planning to start up as a landlord for the first time or expand their portfolio.’ He said that as a result, ‘it will be interesting to see how the rental market responds if there is a disruption to investment in supply.’[1]

Concluding, Gill said that, ‘this is likely to be a short-term effect. Over the longer term there is a consistent and developing lack of housing across all tenures, for a spiralling population. Owners and renters alike will see the cost of somewhere to live continue to rise, whether expressed in rents or prices. Stamp duty surcharges could funnel more money from the industry to the Treasury, but ultimately will not change the level of demand from tenants

[1] http://www.propertyreporter.co.uk/landlords/best-buy-to-let-returns-since-2014.html

 

HMOs Earn Returns of 40% More Than Standard BTL

Published On: July 7, 2015 at 5:05 pm

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Houses in Multiple Occupation (HMOs) made over 40% more in returns than standard buy-to-let properties when compared over four years between 2010-14 by Platinum Property Partners (PPP).

The study revealed that HMOs rented to key workers and young professionals had an average return on equity of 108% between the four-year period. This is more than 40% over returns on standard buy-to-lets, which were an average of 77%.

Every £1,000 invested in HMOs in 2010 would have grown to £2,080 by 2014, compared to £1,770 in standard buy-to-let properties.

PPP also found that HMOs offer far higher returns than other asset classes, including UK equities, commercial properties, gilts (UK government bonds) and cash investments.

HMOs Earn Returns of 40% More Than Standard BTL

HMOs Earn Returns of 40% More Than Standard BTL

After buy-to-let, UK equities – measured by the FTSE All Share Total Return Index – was the best performing asset class, with a total return of 46% over the same period, followed by commercial property at 41%.

Returns from gilts were significantly less at 23%. The worst returns came from cash – measured by the 1 month LIBOR rate – which returned just 2% between 2010-14. This is unsurprising considering the extremely low interest rates around, but these investments did not even keep up with inflation.

In 2010, the average price paid for a standard buy-to-let property was £166,726 with an equity investment of £46,683. This made a total return of £35,817.

The average price paid for an HMO was much higher – £213,988 in 2010, with an equity investment of £118,508.

This is due to the generally larger sized properties that HMOs require and the higher refurbishment costs for converting an ordinary home into a good standard shared house, for example, installing en-suite bathrooms.

However, despite the significantly higher investment, HMO landlords received a considerably higher return over the four years, an average of £127,781.

Founder and Chairman of PPP, Steve Bolton, says: “Buy-to-let has proven itself to be the top performing investment over the past four years, with returns from bricks and mortar investments outpacing other asset classes, like stocks and shares, considerably.

“However, not all types of buy-to-let property offer equal investment return; our research shows that HMO properties let to young professionals and key workers have the potential for substantially higher returns than vanilla or standard buy-to-let properties.”

Bolton explains: “One of the main reasons for this is that HMO investment is intrinsically geared towards maximising rental income. HMO properties are strategically converted and refurbished to increase the size of communal areas and number of rentable bedrooms, therefore allowing for a higher number of tenants on individual rather than shared tenancy agreements.

“This results in greater returns for landlords, despite the higher price initially paid.”

He continues: “However, HMOs aren’t all about benefitting landlords; they also fulfil a growing social need for high quality rental properties that are affordable for tenants. The cost of renting a room in an HMO is far lower than renting a one-bedroom flat.

“For the UK’s increasingly mobile workforce, who are delaying putting down roots for longer, it makes financial sense to live in a high-quality HMO and still be able to save for long-term goals rather than spending all of a pay packet on rent.”1 

The research was conducted by former Bank of England economist and CML policy advisor, Rob Thomas, on behalf of PPP.

1 https://www.landlordtoday.co.uk/breaking-news/2015/7/hmos-outperform-standard-btl-by-40

Best Buy-to-Let Postcodes for Rental Returns

Published On: June 16, 2015 at 4:47 pm

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Areas in Birmingham have been named the best postcodes for buy-to-let, with landlords in the West Midlands experiencing the best rental yields in the UK.

Research by property peer-to-peer lending platform LendInvest reveals the highest rental returns by postcode for the first quarter (Q1) of 2015. They can be found in Birmingham, Ipswich, Liverpool and Glasgow.

Best Buy-to-Let Postcodes for Rental Returns

Best Buy-to-Let Postcodes for Rental Returns

Despite Birmingham significantly beating London, postcodes around North and central London still offer the best overall return on investment, due to capital gains achieved by increasing house prices.

The rental yield is calculated by taking the annual rental income and working it out as a percentage of the property price.

LendInvest took the average asking rental price per year and divided it by the average asking price on the property, using 1,000,000 sales figures and 500,000 rental listings from Zoopla. The findings were then split into the first part of the postcode, called the outcode.

Four of the top ten highest rental yields were in Birmingham, with 13.6% in B44, 11.9% in B42, 10.5% in B98 and 9.1% in B23.

In Ipswich, landlords can achieve 10.8% returns in IP4 and 9% in L28 in Liverpool. Glasgow areas, G34, G21 and G22 yield 11.9%, 10.1% and 9.2% respectively.

Managing Director of Property Let By Us, Jane Morris, comments: “Many landlords tend to invest near to where they live, but if they look further afield, they could easily increase their yields and capital growth.

“The Midlands provides a great investment opportunity as the property is much more affordable than the South East and the yields are high. For example, in Coventry, a three-bed semi will cost around £125,000 and will provide rental yields of around 6.57%.

“Many of the landlords that we work with are netting between 6.57% and 9.1% from their properties in Birmingham, Coventry and Nuneaton. My advice to any landlord looking to invest outside their area is: Carry out thorough research on property prices, rent prices and yields, to ensure they make the right investment.”1

1 http://www.propertyflock.co.uk/f/E1047DCAE

Investors Receiving Highest Returns in Manchester

Published On: June 1, 2015 at 5:08 pm

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HSBC Mortgages has found that the top three areas for receiving the highest rental returns are in the North West. So far this year, Manchester has offered the largest yield, at 7.93%.

Investors Receiving Highest Returns in Manchester

Investors Receiving Highest Returns in Manchester

Manchester made it to the top of the buy-to-let hotspots in the country, up from second place in 2014. Rental returns in London are some of the lowest.

Buy-to-let investors have been heading to the North of England as prices are typically lower and consequently produce higher yields. HSBC found Manchester, Kingston upon Hull and Blackpool to have the best returns.

The bank also revealed that Manchester has experienced a slight rise in average property prices, up from £104,244 in 2014 to £108,870 in 2015. However, economic progress in the city has upheld strong demand for rental accommodation.

Annual rents in Manchester have increased by 4% in the past year, from £8,316 to £8,628. Furthermore, the North West as a whole, especially Manchester, has one of the largest student populations in Europe.

HSBC found that over a quarter (27%) of housing stock is privately rented in the city, giving it the highest proportion of rental homes in the UK.

Kingston upon Hull and Blackpool have climbed the list due to their low house prices and strengthening demand for rental accommodation.

The average house price in Kingston upon Hull is £69,135 and Blackpool’s is slightly higher at £79,654. However, both areas require the lowest initial buy-to-let investment of all locations studied. The research included 50 UK towns and cities with the most private rental housing stock.

Top 20 areas for buy-to-let returns

Position Location 2014 position % of privately rented housing Average house price Average monthly rent Average annual rent Rental yield

Year-on-year yield growth
1 Manchester 2 27% £108,870 £719 £8,628 7.93% -0.7%
2 Kingston upon Hull 5 19% £69,135 £450 £5,400 7.81% 4.5%
3 Blackpool 4 24% £79,654 £488 £5,856 7.35% -3.6%
4 Forest Heath 22 22% £171,322 £1,035 £12,432 7.26% 38.7%
5 Coventry 6 19% £115,945 £702 £8,424 7.2% 1.5%
6 Southampton 1 23% £151,415 £900 £10,900 7.13% -18.3%
7 Nottingham 3 22% £89,312 £524 £6,288 7.04% -8.3%
8 Liverpool 9 22% £90,426 £494 £5,928 6.56% 0.8%
9 Cardiff 16 20% £150,892 £802 £9,624 6.38% 6.8%
10 Portsmouth 8 22% £155,696 £825 £9,900 6.36% -2.2%
11 Slough 11 23% £198,972 £1,050 £12,600 6.33% -1.8%
12 Cambridge 10 24% £205,019 £1,083 £12,995 6.31% -2.5%
13 Bournemouth 12 28% £183,600 £950 £11,400 6.21% -0.3%
14 Oxford 7 25% £277,201 £1,432 £17,184 6.2% -11.7%
15 Luton 15 21% £144,721 £725 £8,700 6.01% 0.4%
16 Leicester 17 21% £115,860 £550 £6,600 5.7% -3%
17 Brighton & Hove 13 28% £265,858 £1,248 £14,976 5.63% -8.8%
18 Southend-on-Sea 23 21% £172,024 £776 £9,312 5.41% 4.4%
19 Norwich 25 20% £158,102 £700 £8,400 5.31% 5.4%
20 Newham 14 33% £292,306 £1,255 £15,192 5.2% -13.4%

Head of Mortgages at HSBC, Tracie Pearce, comments on the significance of location, property prices and rental demand when investing in the buy-to-let sector: “Our research shows buy-to-let remains an attractive option for investors, but it’s important they focus on locations where rents have outpaced house prices. This means not just looking at large towns and cities, but also commuter areas and those with high rental demand and concentrated employment, such as a hospital or university nearby.

“Almost a third of areas in our report have seen a year-on-year growth in yield and almost half of the areas have achieved yields above 5%.

“Buy-to-let is a big investment and shouldn’t be taken lightly, but with the right research, landlords can feel confident that they can achieve good returns around the UK.”1

The top buy-to-let hotspot in London is Newham, with an annual rental yield of 5.2%.

However, the capital has experienced continuous decline in rental returns as property prices have increased without corresponding rents. Newham, Brent and Lewisham have seen a decrease in yield growth of over 10%.

Six of the ten worst places for buy-to-let returns are in London, with yields as low as 2.87% in Kensington and Chelsea, where the average house price is now over £1m and rents have been stagnant.

1 http://www.landlordzone.co.uk/news/manchester-buy-to-let-gives-highest-blt-yields#