Yields in the southern parts of the country have risen this month, while those in the Midlands and North have mostly fallen, narrowing slightly the North-South divide (whereby yields in cheaper, northern areas tend to be higher than in more expensive, southern ones).
Increases in yield were seen in the South East (+2.36%), Greater London (+1.15%) and the South West (+1.11%), while yields fell in the North (-3.61%), Yorkshire (–3.21%), West Midlands (–0.24%), East Midlands (–2.94%), East Anglia (–4.61%), Wales (–0.69%).
John Heron, managing director of Paragon Mortgages, says: “This month, rising yields in London and southern England generally are driving an overall increase in yields across the country. In particular, we seem to be seeing a sustained firming of yields, over two months or so, in Greater London and the South East – which must be good news for landlords in and around the capital.”
Despite this narrowing of the North-South divide, the highest yielding regions in the country continue to be the North and North West, which are also – not coincidentally – the areas with the cheapest property values:
Nationally, property values also continued their upward trend, increasing by 1.41% to £125,246 from £123,498 in August. The investor landlord now pays 19.77% more for a property than he or she did a year ago. Buy to let house price inflation has been higher over the past 12 months than that for the housing market as whole (Halifax recorded a rise of 18.6% over the year, Nationwide 15.5%), but investors continue to purchase buy to let properties at lower values than owner-occupiers. As John Heron explains: “This reflects the fact that tenant demand is strongest for basic, no frills homes rather than upmarket houses or glamorous apartments”.
Rental incomes once again rose strongly (+1.79%), to hit a record level of £9,521 – up +4.50% as compared with a year ago. This is mainly a result of steady demand from tenants of all types for good quality accommodation, with the autumn typically being a busy time for the private rented sector, as students and young professionals set up home.
John Heron continues: “For the second month in a row, the price paid for properties by buy to let landlords and the average rent they receive have risen strongly, by 1.41% and 1.79% respectively. However, rental incomes have risen more rapidly than property values, which had a knock-on positive impact on yields. They are up from 7.57% in July and August to 7.60% this month, reflecting the continued healthy state of the buy to let market in this country driven by unfaltering tenant demand.”
The best areas of the country for buy to let landlords over the past year have been on the eastern side of the country, where the combination of appreciation in property values plus rental incomes received have made overall returns to investors particularly attractive. A buy to let investor who bought an average property a year ago would have generated, over the past 12 months, a total return of 61.65% in the East Midlands, 40.43% in East Anglia and 34.85% in Greater London. The average total return across the whole country is 28.49%.
In terms of property type, terraced and semi-detached properties continue to be most sought-after by tenants and offer the highest yield to landlords, with terraced at 8.66% and semi-detached at 8.09%. Flats and detached houses produce somewhat lower yields of 6.84% and 7.51% respectively.
