Buy-to-let  

Yields for buy-to-let investors fall to 5.7%

Yields for buy-to-let investors fall to 5.7%
Photographer: Hollie Adams/Bloomberg

Buy-to-let investors yielded an average of 5.7 per cent on their property investments in the first quarter of this year, down from 6.3 per cent in the first three months of 2021.

Over the last year, landlords’ rental yields across England and Wales have fallen 0.6 per cent, according to data collected by Starling Bank-owned lender Fleet Mortgages.

All regions, except the North East which remained unchanged, have seen a slight yearly drop in rental yields. 

Meanwhile, the North West region has seen the most significant drop, with yields falling 1 per cent over the last 12 months.

Steve Cox, Fleet Mortgages’ chief commercial officer, said it is clear rental yields “have dipped very slightly” on a yearly basis.

“Looking further ahead, it’s likely that landlords are going to need to cut their cloth accordingly when it comes to setting rents, especially given the large increases in the cost of living that tenants are clearly not immune from and will need to be factored into rent levels,” said Cox.

Parts of the UK - particularly London - are becoming less attractive prospects for property investment returns as buy-to-let growth stalls. So much so that some investors are turning to cryptocurrency over property for bigger gains.

In the past five years, the government has made a series of reforms which have affected buy-to-let investors. These include a 3 per cent stamp duty surcharge, more stringent affordability tests and reforms to mortgage relief.

And now, with mortgage rates on the rise, the levels of investment required to secure a buy-to-let mortgage are only getting higher.

Cox, whose company specialises in buy-to-let mortgages, was quick to highlight that rental yields across England and Wales were up 0.1 per cent this year, compared to the last three months of 2021.

He therefore argued property investment “retains its allure as a strong asset class”, and that the good news for landlords is the supply of finance from lenders like Fleet remains “very strong” with rates still at highly competitive levels.

For the seventh consecutive quarter, the North East of England recorded the top rental yield across the region at 8.7 per cent. This is compared to Greater London, which generates nearly half this yield, at 4.6 per cent.

ruby.hinchliffe@ft.com