Increased remortgaging sees drop in rental yields

Increased remortgaging sees a drop in rental yields but there is good news on the horizon

05 July 2005: Quarterly rental yield figures released today by Landlord Mortgages, the UK’s largest specialist buy-to-let broker, show that rental yields fell marginally across England from 6.08% (Q1 2005) to 5.97% (Q2 2005).

Rental yields in London (6.08% to 5.99%) also fell slightly over the period while Scotland (7.37% to 6.47%) recorded a sharp fall.

However, it says this is not necessarily bad news for the market. Lee Grandin, Managing Director of Landlord Mortgages comments: "We have seen a fall in rental yields over the last quarter which can be partially attributed to an increase in remortgage activity.

"Many of our Landlords purchase undermarket value properties and some time later remortgage them for their full market value in order to release equity to expand their portfolios. This causes a property’s rental yield to fall by an average of 0.85%.

"Q2 has traditionally been down on Q1 but other factors which have impacted over this quarter are the historically high house prices and the relatively stable rental levels.

"London is often seen as a barometer of the UK housing market experiencing changes before other regions. This suggests, there is good news ahead for the buy-to-let investors as London showed a marginal increase in rental yields from 5.93% (2004 Q2) to 5.99% (2005 Q2). This can be attributed to rising rents and strong tenant demand in the capital.

"However, Scotland showed a significant fall from 8.02% (Q2 2004) to 6.47% (Q2 2005). This decline can be attributed to house prices in Scotland starting to catch up with those in the rest of the country. Over the same period, England recorded a marginal fall from 5.99% (Q2 2004) to 5.97% (Q2 2004).

"Year on year, England and Scotland have both seen rental yield falls. Those in England were relatively minor but there was a sharp fall in Scotland. I believe that this can be attributed to house prices north of the border starting to catch up with those in the rest of the country.

"Despite these falls, I believe that the market will remain relatively stable in 2005 and may even experience some minor gains. The key rental market of London often leads the way for prices in the rest of the country and the year on year gain it has experience adds weight to this argument.

"Our research shows that 65% of landlords are investing for retirement so marginal falls are unlikely to damage their confidence and this optimism will also drive the market."