Buy-to-let rental yields remain flat in first quarter

Buy-to-let rental yields remain flat in first quarter

Buy-to-let rental yields have stayed flat across the UK in the first three months of the year, according to research from Sourced Capital.

Analysis of rental and house prices from the Office for National Statistics by the peer-to-peer investment platform found that rental yields rose by just 0.1 per cent year-on-year in the first quarter.

On a regional scale, London saw the largest decline of 0.22 per cent, while the North East saw the highest growth of 0.12 per cent.

Increases in buy-to-let rental yields were slightly more pronounced on a local level as Corby, in the East Midlands, saw the largest growth of 0.68 per cent year-on-year.

Meanwhile, Glasgow remained the strongest on average rental yield at 7.87 per cent in the first quarter, despite a 0.03 per cent decline from Q1 2019.

Stephen Moss, managing director of Sourced Capital, said: “Turning a profit in the buy-to-let sector remains a tough ask with a number of government changes denting profitability and yields remaining largely flat.

“However, that’s not to say that a buy-to-let property won’t make a great investment should you place your money in the right pockets of the market. Buy-to-let returns are based on fine margins and so an annual increase of 0.7 per cent isn’t as insignificant as it may seem.”

The buy-to-let market has been impacted by tax rule changes in recent years, which meant landlords have been unable to deduct their mortgage expenses from taxable rental income from April 2020, receiving a tax credit based on 20 per cent of their mortgage interest payments instead.

An additional 3 per cent stamp duty surcharge on second homes was also introduced in April 2016, hitting the pockets of many buyers.

These changes have also seen more landlord 'professionalise' by setting up limited companies and running larger portfolios.

Analysis of data from the Landlords Panel and the UK House Price Index by lettings management platform Howsy found the North East currently tops the table for the number of properties in the average portfolio, at 13.1.

The region also had the lowest average house price regionally at £127,704 in the first quarter of the year.

Callum Brannan, founder and CEO of Howsy, said: “When investing in a buy-to-let there’s a whole host of criteria to consider above and beyond the yield available. 

“Demand plays a huge part in the success or failure of your investment and so other criteria such as void periods should be carefully considered. It’s all well and good securing a higher yield, but if your property remains empty for a larger proportion of the year this will dent your profitability.”

Liz Syms, CEO at Connect for Intermediaries, added: “Yields are important to property investors who are looking to generate a regular income today, perhaps to supplement or replace other earned income. For these types of investors, we have seen diversification into different property types such as [houses in multiple occupation] and holidays lets to drive higher yields.