Landlords are set to cash in on booming rent and property price increases that are boosting buy to let yields.
One leading letting agent expects to see yields burst through the 10% barrier during the coming year.
LSL Property Services – owners of several leading letting and estate agent chains – believes the buy to let yield on an average rental property price of £164,425 will hit £17,657.
The gross yield figure includes rent increase and capital appreciation.
LSL’s rent index quotes the average buy to let rent in England and Wales as £705 a month.
The firm says buy to let yields are currently around 5%, almost double the same time a year ago, and fuelled by rising year-on-year rents and recovering house prices.
Experts at the firm have worked out that if the upward trend continues at the same rate over coming months, buy to let yields could reach 10.7% by this time next year.
David Brown, the firm’s commercial director, expects to keep rising.
The year-on-year increase for rents is running at 2.7% – the same figure as inflation. However, rents vary between regions, with London showing an average annual 4.9% rent increase, while rents have dropped back in the East Midlands ((-2.2%) and the North west (-0.4%).
“With the passing of the stamp duty deadline increasing the cost of moving, and banks’ funding conditions likely to limit high value mortgage lending to first-time buyers, would-be buyers will be more reliant than ever on rented accommodation,” he said.
While landlords in London are seeing the highest rental growth, they are also experiencing some of the lowest yields as property prices soar in value.
Other reports from buy to let insurers and mortgage companies support the view that gross buy to let yields are rising in many parts of the country.