They have risen in the capital from a low of 6.56% in July this year to 7.00% in October, a rise of 6.7% over the quarter. The trend in the capital is symptomatic of a general firming of yields in southern parts of the country, with yields in the South East rising to 7.21% (+1.4%) and in the South West to 8.02% (+6.47%). John Heron, managing director of Paragon Mortgages, says: “London landlords are enjoying a sustained improvement in rental yields which have now broken through the 7% barrier. This is good news for property investors in the capital.”
Nationally, yields are unchanged at 7.60%, and remain marginally up on the 7.57% registered in July and August. With solid tenant demand, buy-to-let yields appear to have stabilised.
Yields in the Midlands and North have eased, further reducing the North-South divide (whereby yields in cheaper, northern areas tend to be higher than in more expensive, southern ones).
John Heron continues: “The rising yields in London are matched by increases across southern England, while there was some softening of yields in the Midlands and North: the North-South divide is continuing to diminish.”
Notwithstanding this trend, yields remain higher overall in the North and North West, although Greater London is no longer the lowest yielding region of the country, following a fall in yield in East Anglia in October:
Property values were once again higher in October (+1.66%), the seventh consecutive monthly rise. At £127,329, property values stood 16.7% higher in October than in March. While investors continue to purchase properties at lower prices than owner-occupiers (Paragon’s average price compares with £137,780 according to Halifax and £131,947 according to Nationwide), house price inflation on properties bought by buy-to-let landlords has been higher over the past year than for residential properties generally. Investor landlords are now paying 20.3% more for a property than a year ago, compared with rises of 16.7% and 16.1% according to Halifax and Nationwide respectively.
Once again, rental incomes saw a healthy rise, up 1.58% on the month at £9,672 - the third consecutive monthly increase. Rental incomes are up 8.49% over the past year, more than double the rate of inflation, reflecting sustained demand from tenants, particularly during the busy autumn period as lots of people find rented accommodation. However, rents have been rising over the past 12 months at a lower rate than house prices, which has led to an overall decline in the yields achieved by landlords year-on-year.
John Heron continues: “Prices paid by landlords continue to rise steadily, but rents are rising at the same time. That means that yields are holding up well, thanks to continued strong demand from tenants for good quality rented homes. Affordability issues for first time buyers are clearly helping to boost tenant demand and underpin the buy-to-let sector.”
In October, landlords in the East Midlands achieved the highest overall return, calculated on capital appreciation of the property plus rental incomes received on an average buy-to-let investment purchased one year ago. The overall return in the East Midlands was 46.42%, down from 61.65% in September. Average total return to the investor in Greater London rose sharply last month to 43.63% from 34.85% in September, bolstered by capital appreciation (£65,556) and rental income (£13,009), and bringing London into second place in the league table of total returns.
Nationally, average total return is 28.73%, up slightly on September’s 28.49%.
As previously, terraced homes remain favourite with landlords and tenants, and offering the highest average yield, of 8.71% - up from 8.66% in September. Other property types saw slight falls in yield over the month, with semi-detached at 7.89% and flats at 6.76%.
