Inflation hits yields as rents rise outside capital – BM Solutions

  • 29/03/2018
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Inflation hits yields as rents rise outside capital – BM Solutions
Buy-to-let (BTL) rental yields slipped in the second half of the year as higher inflation bit into landlords’ returns, according to data from BM Solutions.


The lender’s data also revealed that falls in London and stagnation in the South-East dragged down the rest of the country, which saw rental growth of at least 2% in all other regions.

Overall, gross rental yields reached 5.2% in the second half of 2017, but with consumer price inflation averaging 2.9% this resulted in a real return of 2.3%, down from 4.3% in the final six months of 2016.

A distinct North-South divide prevails with the highest yields in the North (6.9%), followed by Northern Ireland (6.2%) and then the North West, Yorkshire and the Humber and Wales (all 6.0%).

The lowest rental yields are in London (4.5%), followed by the South East and the South West (both 4.8%).


Average rents

Excluding London from the calculations, the rest of the UK saw an average 2.4% increase in monthly rents between H2 2016 and H2 2017, with an average increase of £16 per month.

The average rent in Greater London at £1,540 per month was 105% higher than the UK average of £750 and 40% above that in the South East (£1,097).

However, London was the only region to see rents fall in the last six months of 2017 compared to the same period in 2016 – a drop of 3.2% (£51).

Northern Ireland had the lowest rent in the UK, at an average of £452pm, just over a quarter of the London average.


Transaction data

The lender noted that UK Finance data showed buy-to-let purchases with a mortgage in the whole of 2017 were 27% lower than in 2016 at 74,900.

And it added that transactions were 59% below the pre-housing downturn peak of 183,280 recorded in 2007 but 52% higher than the market dip of 49,400 in 2010.

But it was largely pleased with the stability in buy-to-let transactions between July and December, following the tax changes which distorted the market significantly in the first half of 2016.

It said market data showed transactions remained broadly stable at 38,400 consistent with the same period in 2016.


Holding up well

BM Solutions head Phil Rickards noted that at the end of last year landlords will have seen rental yields remaining broadly stable.

“However, taking into account stamp duty changes in April 2016, the loss of tax relief on mortgage costs and the tighter regulation of affordability assessments, combined with higher prices, it’s not surprising that landlords in the southern regions and London are seeing the lowest yields,” he said.

“More broadly, the market is holding up well following this period of change, which also included new rules for portfolio landlords introduced last year.

“In the second half of 2017, the market saw a small increase in transactions compared to the same period the previous year,” he added.

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