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Tuesday, May 24, 2016

BTL average annual returns hit 10.7%

Average rents

The April buy-to-let Index from Your Move and Reeds Rains has rents up 0.3% during the month pushing the average rent in  England and Wales to £793 pcm.

These latest figures show rents in the East Midlands have seen an annual growth of 8.5%, putting it along with the regions of the West Midlands and East of England at their record highest average rents.

Investment returns

Strong rental growth along with capital increases have seen BTL property beat all other major asset classes.

LSl calculate that the average annual return on a BTL investment is now at 10.7%, equating to£19,538, broken up as £10,815 of capital growth and £8,723 of rental income.

Increases in property prices have seen the lowering of the average rental yield on BTL properties across England and Wales, now 4.9% (excluding rental voids), down from 5.1% in April 2015.

LSL's Adrian Gill comments: 

“Yields and returns have been remarkably steady in the face of an onslaught of hostile rhetoric and regulatory hoops. And all else being the same, there is a chance that gross yields could rise marginally, to take account of any extra costs and complexities associated with being a landlord – such as the stamp duty surcharge.

More change is on the way, and landlords will need to take appropriate financial advice on how changes to the tax system could affect them – as well as ensuring that their properties and tenancy agreements comply with every single rule and requirement. But this latest imposition is actually not a tax on existing or accidental landlords. Actually, the stamp duty surcharge is a barrier to entry. The danger for tenants is that this new rule will prevent new houses and flats to rent coming on to the market. The advantage for landlords in some areas could be less competition. But anyone trying to grow their rental portfolio will now need to spend even more time making the right decision – and as of last month more money too.”

Rental arrears

Tenants' rental arrears fell to 8.1% of due rents. This compares favourably to the LSL index's all-time high of 14.6% recorded back in February 2010.

Gill comments:

“All the signs are right for a strong improvement in tenant finances. Wages are finally showing a bit of exuberance and employment has never been higher. But rents haven’t ever been higher either in much of the country. There is a powerful trend underpinning the affordability of renting for a large majority of Britain’s tenants, but there are also serious shortages of homes to let in all the same places that people want to live.

Rental arrears reflect this mismatch between supply and demand. Waves of interest from the bulk of financially healthy tenants are capable of pushing up rents across the market. But unless landlords are allowed to respond by investing in new homes then supply will not quite ever be able to keep up. This is the mechanism that very soon could demonstrate the misguided nature of the latest targeting of landlords from the UK authorities. Tenants will always lose out if the bottom line is a shortage of flats to rent or houses to rent in local markets.”

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