The study from the lettings and estate agent found that the average cost of investing in a buy-to-let property comes to just shy of £290,000, which brings in a typical £1,276 per month in rent. This works out at a gross rental yield of 5.3 per cent, up from the typical 4.8 per cent recorded over the last year.
However, when looking at the net yield ‒ which takes into account other costs associated with a buy-to-let property, such as letting agent fees, maintenance costs, safety certificates and landlord insurance, the picture is less positive for landlords.
The analysis found that these costs come to an average of almost £5,500, meaning a net yield of just 3.4 per cent. While this is up from the three per cent recorded last year, it is not the sort of return landlords would previously have expected from their investments. The ongoing costs also do not include the costs of repaying a mortgage, which have grown over the last year as interest rates have risen.
Recent research from Octane Capital suggested that mortgage payment increases have outpaced rental growth, while brokers have reported that the market is ‘virtually non-existent’ despite falling interest rates.
Separate research from Benham and Reeves has dug into how inflation is impacting buy-to-let profitability, given the higher costs of furnishing a rental property. For example, the cost of electric cookers has risen 12.3 per cent over the year, curtains have risen 8.8 per cent and dishwashers are up 6.7 per cent.
Marc von Grundherr, director of Benham and Reeves, said that while gross yields have remained favourable, there are plenty of additional costs which eat into the profit margins of landlords which need to be considered.
He added: “This is a small detail that the Government has largely neglected to consider when waging war against the sector and introducing numerous legislative changes designed to dent profitability.
“What’s more, the cost of goods remains considerably higher than they were just a year ago and so even furnishing a property to an acceptable standard can be an expensive endeavour.”
