Out of the ten regions the South East and Greater London have consistently displayed the lowest yields due to higher property prices, yet yields have risen in both regions this month on the back of higher rental incomes. Landlord yields in the South East and Greater London currently stand at 6.4% and 5.9% respectively.
Average rental incomes in the two regions rose this month to reach £10,549 in the South East and £16,908 in Greater London. Property values in Greater London currently average £288,490 and in the South East £165,721. Over the last twelve months rental incomes in Greater London have risen by 18.6% and by 6.5% in the South East. Over the same period property values in these regions rose by 21.2% and by 4.9% respectively.
John Heron, managing director, said: “Due to sustained demand rental incomes have risen more rapidly than property values in some areas, which have in turn had a positive impact on rental yields. The start of the new academic year typically results in a rise in tenant demand, especially in regions with large student populations like the South East and Greater London.”
Across the remainder of the regions East Anglia, the South West and the West Midlands also saw increases in rental incomes.
Nationally, average property values eased slightly this month, to £160,001. Rental incomes also declined slightly in September, down from the record levels recorded in July. Average landlord yields remained at 6.5%.
John Heron continues: “Whilst rental incomes have stabilised since the heady heights achieved over the summer the overall trend is still upwards over the longer term. The average rent has risen from £9,606 in September 2004 to £10,386 in September 2005 – an increase of 8%. As we continue into autumn we could expect to see a pick-up in rental incomes, if the market were to follow the same pattern as that seen over the autumn of 2003 and 2004.”
Graph 1: Property Values and Rental Incomes
In terms of total returns (i.e. taking into account both capital appreciation plus average rental return on a property bought 12 months ago), Greater London fared well this month generating average landlord returns of 27.2%.
The best areas of the country for buy-to-let landlords over the past year have been Yorkshire and Wales, where the combination of appreciation in property values plus rental incomes have made overall returns to investors particularly attractive. A buy-to-let investor who bought an average property twelve months ago would have generated a total return of 38.1% in Yorkshire and 30.6% in the North West. The average total return across the whole country is 16.7%.
John Heron continued: “The North-South divide has lessened slightly this month as yields in the South East and Greater London have improved. Landlords are still seeing healthy returns on their investments at an average of £24,000 since September last year.”
