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.
[SPOTLIGHT]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% |
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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.
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