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0:01 AM, 29th June 2018, About 6 years ago 3
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Analysing average rental yields across UK local authorities, properties in Burnley in Lancashire offer the best returns for landlords with an annualised rental yield of 7.1%. With average house price values in the town at £76,300 and annual rents of £5,388, landlords in the area are able to leverage from a better return on their property investment than other parts of the UK.
Glasgow City in Scotland comes in second at 6.9% and Belfast in Northern Ireland follows suit with annual yields of 6.4%.
New analysis by landlord insurer Direct Line for Business reveals the UK’s property hotspots for investment landlords.
Areas with the highest rental yield in each UK region (2015-17)
On a broader regional level, Northern Ireland offers landlords the best yield, with an annualised return of 5.6%. This is followed by Scotland (5.3%) and the North East (5%).
Meanwhile, rental markets in London, the South East and the East of England offer the poorest yields on properties largely due to the high cost of purchasing a property in these locations.
Rental yields in London, where the average house price exceeded £480,000 in 2017, stand at just 4.4% (annualised), despite the average annual rents costing more than £20,000. Likewise, yields in the South East, where properties cost an average of £322,000, is relatively low at 3.7%, while in the East of England (average property price of £289,000 in 2017) the annualised yield stands at 3.5%, the lowest in the UK.
The range of yield on a regional basis can be explained by the broad variation in house prices across the UK and the smaller disparity in rent. While average house prices range from just £76,000 in Burnley to £1.25 million in Kensington and Chelsea, a multiple of 16 times, rents are more uniform. The highest average rent in the UK is in Kensington and Chelsea (£42,528 per year), nine times the cost of the lowest rent, which can be found in Blaenau Gwent, Wales (£4,803 per year).
Regional property prices and yield, 2015-17
Christina Dimitrov, Business Manager at Direct Line for Business, commented: “While the UK’s homeowners can look back at strong gains in the period between 2014 and 2017 where average property price was 17%, it’s a different story for the rental market where average rents across the country rose by 4.7% during this period, which remains below the average salary increase of 5.3%.
“As the number of renters across the UK increases, so too has the number of private landlords, with more than five million privately-let properties currently in the UK3. With this increased competition, it is more important than ever that landlords are able to offer their tenants well maintained and fully insured properties that will provide best return on their investment in the future.”
Across the UK, house price inflation has significantly outstripped increases in rental values. The average annual rent has risen by 4.7% over the last three years, growing from £7,392 in 2015 to £7,739 in 2017, an increase of £116 per year or £10 per month. Over the same period, average house prices have risen by nearly £32,000, increasing from £191,855 in 2014 to £223,807 in 2017 – an increase of 17%.
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Hamish McBloggs
10:12 AM, 29th June 2018, About 6 years ago
I know you all know this. But I'm going to play stupid.
I read the financial press and it's all yield yield yield. So this is a philosophical question to which there is no right answer. I just want to understand other's approaches to investment justification a bit more.
'yield' is a simple calculation:
PREDICTED RENT divided by CAPITAL in this case.
£76,300/5,388 = 7.06% rounded to 2sf's = 7.1%
Got it.
But the yield only works if we can magic the money for the denominator at 0%
This has nagged at me for years.
What is the real return? The return you can buy beer with?
Taking off all the usual likely suspects including cost of accountant, purchase, maintenance, any ground rent, legal, paper for the printer and the green ink for the latest right to rent check .... can easily and significantly dent that £5,388.
But we all know the biggest on going cost to the business is the cost of finance.
My offset mortgage is 1.49%.
Paragon bank SVR is 5.35%, 3.7% if you go for a fixed rate for 2 years (don't forget the fees)
15% deposit @ 1.49% and the rest @ 3.70% comes to about £2570
So we knock this off each year at we get a real return (pre tax) of 3.7%
and then consider the voids, maintenance, HMRC wrangling, and the 3.7% goes down again.
I suspect that there are 2 main subsets in the Universal set of landlords, incorporated and not. Within each of these there are ranges from 1 property to 100's. The approaches are all different.
Opportunity. There are about 25 tonnes of gold in a cubic mile of sea water at about £950 per 28 grammes and sea water is free. This is an infinite yield. I can sell you an evaporation pond to get it, apply within.
How do you justify it?
Thanks
Hamish
david porter
11:49 AM, 29th June 2018, About 6 years ago
I cannot see capital appreciation figures, perhaps there is capital depreciation, beware negative equity!
Hamish McBloggs
10:27 AM, 2nd July 2018, About 6 years ago
Apart from getting my numerator and denominator mixed up, I was broadly looking the going concern aspect initially.
The whole project's internal rate of return must be above that achievable from a high street ISA. 1.3% easy access and 2.31% fixed.
Of course, there are SIPs for both personal and company pension contributions.
I just thinking aloud.