Buy to let landlords enjoy strong yields and big returns

Gross rental yields stabilised at five per cent in February 2015 while annual returns reached 11.5 per cent to give landlords a considerable boost

It means yields were stable month on month yet dropped by 0.2 per cent from February 2014, according to the latest Buy to Let Index from Your Move and Reeds Rains which also reported the fastest rents rise in England and Wales since May 2013.

When price growth and void periods were taken into account, total annual returns stood at 11.5 per cent in the year to February 2015; bucking the trend noted over the past six months whereby returns have slowly decreased.

Taking home more money

In absolute terms, the average landlord in England and Wales has seen a return of £19,849 in the past year before the deduction of mortgage repayments and maintenance costs.

When broken down it equates to £8,167 in rental income and an average capital gain of £11,682 to provide a welcome boost for landlords and investors alike.

Adrian Gill, Director of estate agents Your Move and Reeds Rains, described renting as a “sound investment” under current conditions.

“With buy to let properties offering such generous returns on income and capital, it’s no wonder first time buyers are getting squeezed out by landlord demand,” he said.

“Yields have steadied near the five per cent mark, and we’re seeing a reciprocal stability in total annual return as property prices stabilise.”

He described these stable conditions as good for both landlords and tenants but warned that more house building is required in the long-term to ensure everyone can prosper.

Some uncertainty was also reported over rental arrears which rose to 7.6 per cent in February – a monthly and yearly increase.

However, this change was described as a “very minor setback in the face of the dominant downward trend” by Gill who also said such market movements were “perfectly natural” and had occurred many times before.

He said the fact that overall we’re “seeing far less rent in arrears than five years ago” was the core message to take away and “a very good thing for the rental market” in general.