Research by Direct Line for Business shows that there is significantly variation in landlords’ income yield, depending on where they buy. Buy-to-let investors are being encouraged to look further afield for yield.
According to this research, reported by The FT, buy-to-let investors are wise to look across the regions and do their own thorough research if they want to secure a decent yield from their rental properties.
For example, Burnley in Lancashire, according to Direct Line, recorded had the highest annualised rental yield in the country. Average house prices in the town were just £76,300, while a typical annual rent in Burnley is around £5,388.
Of course, yield reflects risk, so landlords need to be aware that although the prices are low, and consequently rental yields are high, there are more risks associated with these types of investments.
What’s more, investing at a distance is always more problematic than doing so on the doorstep: landlords are then totally in the hands of their letting agent to manage their tenancies. That’s all fine if landlords can find good agents, but if bad agents are engaged the investment can turn out to be nightmarish.
The Direct Line research found that while house prices have risen by around 17 per cent over the last three years, rents are up by just 4.7 per cent. And while the average yield achieved across the UK is 3.6 per cent, some buyers, depending on where they buy, can achieve as high as 7.1 per cent.
Other locations in the top league as far as yield is concerned were the Cities of Glasgow (6.9%) and Belfast (6.4), whereas at the other extreme, average yields in London and the south east were considerably lower.
In some parts of London landlords can achieve annual rents of £20,000 or more, but as average house prices can top £480,000, the average yield recorded by Direct Line was more like 4.4 per cent.
Conversely, in the east of England, where house prices average around £289,000, average rents are the lowest in the country, resulting in an average yield of just 3.5 per cent.
Daniel Bailey, principal at Middleton Finance, told The FT:
“Most of my buy-to-let investors don’t tend to pay more than £125,000. If they go beyond that then the yield tends to not be as good.
“Purchase price is a major factor and some areas will attract a better monthly rent. I have some clients achieving yields of 7 to 10 per cent.
“There are still good yields to be achieved but it is important to speak to a broker and property tax expert to understand all of the implications.”
Direct Line said increased competition in the private rented sector was hitting yields.
Christina Dimitrov, business manager at Direct Line for Business, had said:
“While property prices have increased in recent years, it’s a different story for the rental markets where growth in rents in lower than wage growth.”