Rental yields across the rest of the UK are beginning to show signs of recovering from their long-tern downward spiral though, stabilising over the last quarter to remain at 5.45 per cent. London was the only region to see a continued downward spiral in yields, falling to 5.25 per cent (5.38 per cent in Q2).
These new figures reveal that the continual fall in rental yields, evident since the end of 2006, may finally be coming to an end. The house price boom experienced in the UK over the past decade, coupled with rents remaining static, has resulted in fairly low rental yields over the last year. Therefore, buy-to-let investors have relied on capital appreciation to make a profit.
However, the new figures show that house prices are beginning to level off, resulting in higher rental returns, as rents are increased in line with house price inflation.
The increase in rental yields in Scotland show that capital appreciation in the region is stabilising and returns on the rental property are becoming more profitable. The fact that London rental yields are continuing to fall further is a sign that the Capital is still experiencing higher house price growth than the rest of the UK.
Lee Grandin, managing director at Landlord Mortgages commented: “It is great to see that rental yields are rising, with returns in Scotland increasing by 0.45 per cent in the last quarter, and yields in England remaining steady. This can be attributed to a cooling property market, which has allowed rents to increase in line with the healthy capital appreciation these buy-to-let properties have experienced over the last few years.
“As properties in the Capital are still experiencing high house price inflation, yields in the region are still falling, but at a much slower rate than last quarter. These factors are great news for buy-to-let investors, as due to a lack of good rental property, landlords are managing to increase their rents, offering a much more profitable return on their investment.
“This research shows the future of buy-to-let is looking positive, as we expect rental yields to increase further next quarter. In addition, the turmoil experienced in the sub prime market may lead to an increased demand for buy-to-let property. With many people having their finances stretched to the max with higher debt repayments and mortgage offers growing increasingly uncompetitive and thus unattractive, many will be turning to rental accommodation until the market settles.
“If this happens, demand for rental property could increase dramatically, increasing returns on rental property, which would be great news for buy-to-let investors.”
