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Rising yields are boosting professional buy to let investors, especially those considering adding to their portfolios.
Rents have hit a new record high at an average of £896 per calendar month, with growth accelerating to 1.3 per cent a year, according to the ninth edition of Kent Reliance for Intermediaries’ Buy to let Britain report.
As a result, rising yields have now hit a two-year high. The average yield now stands at 4.5 per cent, its highest since the first quarter of 2017.
In London, rents have only risen by 0.5 per cent. However, with property prices falling, yields in the capital have reached 4.1 per cent, their highest level since the end of 2015.
However, despite rising yields, growth of the private rental sector is subdued on the back of government intervention and the economic impact of Brexit uncertainty.
The value of the £1.3 trillion private rental sector grew by £6 billion in the last year, as the expansion of supply dwindled, and property prices weakened in several parts of the country. The value of the average rental property has risen by 0.3 per cent in the last year, with Brexit uncertainty gripping the wider housing market
As the costs of property investment rise, landlords are seeking to recoup these in higher rents to preserve their profitability and protect rising yields. Around a quarter (24 per cent) of landlords, already expect to raise rents in the next six months, nearly five times the number that expect to reduce them.
Improved finances among tenants is also allowing more leeway. Wages are currently rising at 3.4 per cent, up from 2.9 per cent a year ago and well in excess of inflation.
Professional landlords are not just seeking to recoup higher tax costs in the form of higher rents. Many now operate via limited companies to mitigate the impact of the changes to mortgage tax relief. Analysis of Kent Reliance for Intermediaries’ mortgage data shows that in the first quarter of 2019, 72 per cent of buy to let mortgage applications were made through a limited company, significantly higher than in 2016 (45 per cent).
Andy Golding, Chief Executive of OneSavings Bank, commented: ‘Landlords have rolled with the punches as best they can, but there is no escaping that growth is subdued in the private rented sector following four years of government intervention. Brexit uncertainty has only compounded this issue, having the obvious knock-on-effect on landlords’ confidence.
‘The positive news is that for those landlords looking to expand their portfolios, underlying market conditions seem to be changing. Yields are climbing as rents rise faster than house prices, providing further opportunities for committed investors.’