Rising rents and yields, falling mortgage rates: who wouldn't want to be a landlord?
With rental yields rising and mortgage rates falling, buy-to-let landlords are sitting pretty.
Landlords are benefitting from increased rental income and higher yields, according to two different studies released in the last fortnight.
Both come from respected sources and back up the wide anecdotal evidence that many UK landlords are enjoying a period of high demand, with a high return on their investment, low void periods and the return of some cracking mortgage deals.
Rents accelerate
Average UK rents have grown by 3.2% over the last 12 months, according to LSL Property Services (which owns Reeds Rains and Your Move).
The average monthly rent now stands at a record £741, following a 1.1% rise in September alone.
The survey also showed that rents rose in most of the UK’s regions, with falls in rent only noted in the east of England, Yorkshire & the Humber, and the west Midlands.
London and the south east saw the strongest increases, with rents rising by 1.7% and 1.9% respectively. Average London rents have now reached a record £1,092 a month, having risen at their fastest monthly rate since November 2010 – and having shot up a massive 6.2% over the last year.
LSL puts this continued rise in rental income down to the subdued mortgage market, which is hampering the ability of first-time buyers to get onto the ladder. As a result they need to rent for longer while they save up the large deposits needed by mortgage lenders.
And while the Government’s Funding for Lending scheme is intended to help aspiring homeowners onto the ladder with lower mortgage rates, the need to provide a large deposit is unlikely to change any time soon.
That may be bad news for those who want to buy their first home, but it’s a boon for landlords as rental demand is likely to remain high for the foreseeable future.
Yields are up too!
Rental yields don’t always follow the same trend as rental income, as they are also influenced by property values, but they are rising in the current market.
Landlords are currently reporting an average yield of 6.7%, compared to 6.2% in the second quarter of this year, according to Paragon Mortgages.
The lender also found that professional landlords with 20 or more properties generate a higher yield across their portfolios than amateur landlords, reporting an average of 7.7% compared to just 5.2% for landlords with only a couple of buy-to-let properties.
The research revealed that landlords in the east of England are achieving the highest yields, at 7.5%, followed by landlords in Wales, who generate an average yield of 7.2%. The north east was third in the list with an average yield of 7.2%.
Average rental yields
| Region | Rental yield |
|
East of England |
7.5% |
|
Wales |
7.3% |
|
North east |
7.2% |
|
London (central) |
7.1% |
|
Yorkshire and Humberside |
6.9% |
|
West Midlands |
6.5% |
|
South west |
6.2% |
|
North west |
6.0% |
|
London (outer) |
5.6% |
|
East Midlands |
5.5% |
Source: Paragon Mortgages
Of course, yield isn’t the only factor in terms of overall return on investment, but it is one measure of success. Many landlords will pursue a strategy of achieving a mix of a decent yield and long-term capital appreciation, while others, particularly professional landlords, may focus their attention towards yield. And of course some buy investment properties with potential capital appreciation at the front of their mind.
Research from LSL shows that total annual returns on rental property (taking into account capital growth and rental income) was 6.2% in September, up from 5.5% in August. This represents an average return of £10,216 with rental income of £7,909 and a capital gain of £2,307.
Better buy-to-let deals
There’s even more good news for landlords as the buy-to-let mortgage market is gradually improving, after it was left decimated by the credit crunch. There were 411 buy-to-let mortgages on offer in the summer compared to just 191 in July 2009 at the depths of the crunch, according to Moneyfacts.
Average buy-to-let mortgage rates have also fallen, from 5.8% in July 2009 to 5.03% this summer.
And in the last couple of months we have seen lenders launch some truly remarkable best buy deals for landlords, starting from as little as 2.99% for a two-year fix or 3.99% for a five-year fix.
If you are looking to refinance your buy-to-let portfolio, below are some of the best rates on offer:
Modest deposit or equity – up to 34%
|
Lender |
Deal |
Rate |
Fee |
Max LTV |
|
Two-year tracker |
3.59% |
2.5% |
70% |
|
|
Two-year fix |
3.69% |
3.5% |
75% |
|
|
Two-year tracker |
3.74% |
3.5% |
75% |
|
|
Two-year fix |
3.85% |
£1,995 |
70% |
|
|
Two-year fix |
3.99% |
£995 |
70% |
|
|
Two-year fix |
3.99% |
£1,900 |
75% |
|
|
Two-year fix |
3.99% |
£1,999 |
75% |
|
|
Two-year tracker |
4.09% |
£1,999 |
75% |
|
|
Two-year tracker |
4.19% |
£1,499% |
75% |
|
|
Five-year fix |
4.49% |
3.5% |
75% |
|
|
Five-year fix |
4.94% |
3% |
75% |
|
|
Two-year fix |
5.29% |
£999 |
80% |
|
|
Five-year fix |
5.49% |
£999 |
80% |
Large deposit or equity – 35% and over
|
Lender |
Deal |
Rate |
Fee |
Max LTV |
|
Two-year tracker |
2.89% |
2.5% |
60% |
|
|
Two-year fix |
2.99% |
3.5% |
60% |
|
|
Two-year fix |
3.05% |
3% plus £250 |
60% |
|
|
Two-year tracker |
3.25% |
2.5% |
60% |
|
|
Two-year fix |
3.29% |
2.5% |
60% |
|
|
Two-year tracker |
3.49% |
£1,999 |
60% |
|
|
Two-year fix |
3.49% |
£1,999 |
60% |
|
|
Two-year tracker |
3.59% |
2% |
65% |
|
|
Two-year fix |
3.59% |
2.5% |
60% |
|
|
Five-year fix |
3.99% |
3.5% |
60% |
|
|
Five-year fix |
4.34% |
3% |
60% |
Use lovemoney.com's innovative new mortgage tool now to find the best mortgage for you online
At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.
This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.
Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.
Your home or property may be repossessed if you do not keep up repayments on your mortgage
More on mortgages:
New rules to make mortgage borrowing tougher
Mortgage lenders under fire for extortionate fees
Tesco launches two-year fixed rate mortgage at 1.99%
The lessons I've learned since becoming a buy-to-let landlord
How to evict bad tenants
Landlords hit by first mandatory licensing scheme
Buy to let doesn't add up
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Comments
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Interestingly how long would you let the tenant be in arrears before you look into ending the tenancy? Would it be a month, 2-3 months or would it be if it reached a certain amount. How would you go about evicting the tenant? You actually need a court order to physically get them out and change the locks and then before this is granted the tenant can and has the right to argue their mitigating circumstances and how they are trying to resolve the situation. Landlords need to consider these factors if the tenancy is of an ongoing nature and not fixed e.g. you're letting your house out whilst you're away for a year but you definitely know you are back and when you'll be. Another thing is different people's definition and expectation of wear and tear in terms of deposits. Fabric sofas used daily have a lifespan of 18-24 months. Light coloured carpets no matter how often you vacuum or shampoo any dirty spots don't remain pristine for that long. Also notice periods. Tenants need to find somewhere new and if you drop this on them unexpectedly the reaction can be the same to being dumped by a lover or being made redundant. A person's home is their nest, their little castle. They'll be in shock, grieving so won't be in any state to make the right decisions about signing up to a new tenancy for often a minimum of 6 months straight away. They'll also need to have deposits and a couple of months rent in advance at hand. Many will not have that and likewise funds to cover removals and changing documentation to a new address and mail redirection services. Sorry to go off thread a little but on a moral ground you need to consider these things as it isn't just a transaction money deal. You have a responsibility for people's lives in a way
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@Moreteavicar, what business did you have in mind? FWIW, when I bought my second house, I intended to move there. But I knew I might end up letting it out, so I made sure my financial model worked for the mortgage payments even if it had to remain empty. And, also FWIW, it is not a starter home - it's a house in a rural location for which I paid almost a quarter of a million. That said, I wish my tenant would actually cough up some of his arrears!
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The rent I can get for my flat in Hove has not changed since 2007. If prices are falling and yields rising, this would be a short-term trend which will soon correct itself.
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02 November 2012