Index reveals strong growth in rents and returns for buy to let

Landlords in England and Wales now enjoy total annual returns of 12.2 per cent – or £21,078 – as the buy to let sector thrives.

Data from Your Move and Reeds Rains has revealed average rents in March this year were just £2 below the all-time record high of £770 recorded in October 2014.

It means rents are up 3.9 per cent annually and 0.3 per cent on a monthly basis – a fact which has helped to drive up potential returns for buy to let landlords and investors.

Strong rental yields

Gross rental yields on a typical property in England and Wales stood at five per cent in March, showing no fluctuation from a month previously. This figure was down marginally on the 5.1 per cent seen in March 2014. This data is broadly in line with that of the Complex Buy to Let Index Q1 2015 published by Mortgages for Business. 

When costs such as mortgage repayments and maintenance were not included, total annual returns on an average rental property were 12.2 per cent across the 12 months to March 2015.

This compares to 11.4 per cent for the year to February 2015 and is considerably higher than the 10.8 per cent returns that were possible one year ago.

In absolute terms it means buy to let landlords have seen an average return of £21,078 in the last 12 months – comprised of £8,259 in rental income and capital gains of £12,819.

Outlook remains positive

The index also explained that if current trends continue for another 12 months then an average return of 14.5 per cent or £26,861 could be possible.

Of that figure, £9,216 would be rental income while £17,645 would be capital accumulation.

“Rising rents are supporting steady gross yields, in line with the long-run average of just over five per cent.”

Explained Adrian Gill, Director of Your Move and Reeds Rains.

“Rental yields should stay steady in the immediate future, as market rents grow vigorously while property prices rise at a similar rate.”

Rents have increased dramatically over the last five years, so there is potential for landlords to gain even greater rental income from properties as time passes.

Your Move and Reeds Rains also noted an improvement in tenant finances with rent arrears at 7.4 per cent in March 2015 – down from 7.6% a month before and considerably lower than the 10.7 per cent figure reported in May 2010.

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