What's happening to landlord buy to let returns?

publication date: Jun 6, 2014
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books
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Landlord buy to let returns, what's going on?

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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What’s happening to Capital Growth and Yields?
Acadata/LSL “Gross yields on a typical rental property have held steady at 5.1% in April, the same as in March 2014. Due to higher property values, this is slightly lower than in April 2013, when the average gross yield on a rental property in England and Wales stood at 5.4%. However, taking into account price growth alongside void periods between tenants, total annual returns on the average rental property are considerably higher. Total annual returns are now 10.3% in the twelve months to April, up from 5.8% in the twelve months to April 2013. In absolute terms this means the average landlord in England and Wales has seen a return of £16,887 in the last twelve months, with rental income of £8,057 and capital gain of £8,830.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 7.8% over the next 12 months, equivalent to £13,600 per property. (Apr 14)”


Kate Faulkner comments on Capital Growth & Yields: 
“What we are seeing in buy to let is the true benefit of the investment – returns on capital growth if you have geared the property. Few properties in the UK deliver great income returns unless they are owned outright, and if prices don’t keep up with inflation, this doesn’t stack up either. Of course, some student and HMO lets deliver great income – at a high cost, but for most buy to let investors, it’s capital growth and making sure the let is cash flow neutral which is the key aim. And with rising prices now across most parts of the UK, this is great news for existing investors.”

What’s happening to demand for rental properties?
“There certainly seems to be a bit of a slowdown from a tenant demand perspective and with Buy to Let growing as an investment, it’s good news for tenants who benefit from stagnant or lower rents. Landlords, existing and new, need to be sure their property is delivering a good return on investment, so analysing portfolios and making sure new properties deliver financially is essential, rather than buying, letting and ‘keeping fingers crossed’.” 

Supply of Rental property
“Although the RICS index suggests that landlord instructions are flat, other letting agent groups are seeing quite an uplift in many areas across the UK. Judging by the 60+ people who attended my property clinic at the Investor Show a few weeks ago, it’s clear there is still huge amounts of money around from people 40+ years and even retirees keen to invest their money in buy to let.”

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