0:01 AM, 21st October 2024, About 10 hours ago 2
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Despite a challenging rental market, buy-to-let properties in England and Wales are delivering their highest average gross yields in nearly a decade.
According to research by Hamptons, the average gross rental yield on a newly purchased buy-to-let in England and Wales has reached 7.2%.
This marks a year-on-year increase of 0.5%, with landlords in Wales and the North East seeing the biggest increases.
According to data from Hamptons, Wales saw the largest growth, with average yields climbing by 0.7% to 8.9%.
The North East, traditionally a high-yield region, has also seen yields rise to 9.7%, marking a 0.6% jump compared to 2023. London has also shown strong growth. Although still lower than other regions, the capital’s yields have risen from 5.4% in 2023 to 5.7% in 2024 — a 0.3% increase.
Aneisha Beveridge, head of research at Hamptons, explains the reasons behind the increase.
She said: “Gross yields on new buy-to-let purchases have picked up a fair bit over the last few years, reaching a record high in 2024. This is predominantly because rents have been rising faster than house prices, but we’ve also seen investors become more yield-focused, actively targeting the highest-yielding properties.
“We think that rents are likely to continue outpacing house price growth over the next few years too, albeit slightly less of a gap than we’ve seen over the last few years.”
However, Ms Beveridge adds higher costs and mortgage rates do offset a fair chunk of this growth.
According to Moneyfacts, both the average two-year and five-year fixed-rate buy-to-let mortgages are around 5.25%.
This means that a typical landlord seeking a £200,000 interest-only mortgage on a five-year fix would be looking at monthly payments of around £875, not including any associated fees.
Despite this, Ms Beveridge emphasises that the market still holds potential for investors.
She said: “Falling mortgage rates mean that a typical higher-rate taxpaying investor who purchases a buy-to-let in Great Britain today with a 25% deposit at an average mortgage rate of 4.3% will turn a profit in one year which is certainly a step in the right direction.
Ms Beveridge adds there is still uncertainty in the buy-to-let market due to upcoming regulations including the Renters’ Rights Bill and the October budget. However, she says there are still signs of optimism.
She said: “Our view is that we might start to see investment in buy-to-let pick up a little over the year ahead, albeit from a very low base.
“Bank of England rate cuts will mean Banks will swiftly reduce savings rates, which might start to make buy-to-let look more appealing as an asset class than it was.
“There’s still uncertainty about the tax and regulatory backdrop which will mean investors remain cautious. Any growth in the sector is likely to be led by experienced landlords, rather than new entrants.”
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Cider Drinker
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Sign Up9:45 AM, 21st October 2024, About 29 minutes ago
Yes, yields are high because house prices have stagnated whilst rents have risen.
Of course, net profits have fallen as costs have risen. However, we don’t have the comfort blanket that rising house prices gives us.
Most landlords would do better if they had their money in ISAs.
Old Mrs Landlord
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Sign Up10:09 AM, 21st October 2024, About 6 minutes ago
Reply to the comment left by Cider Drinker at 21/10/2024 - 09:45
Agreed, but note also that they cite rental yield on newly-purchased buy-to-lets. Obviously, any new entrant to the field will buy in a corporate structure so will be unaffected by Section 24, rendering their biggest cost tax deductible, thereby giving them an enormous advantage over established leveraged buy-to-let landlords.This research must therefore apply in only to a minority of cases.