31 Jul

Landlords may opt for non-London investments

Landlords may opt for non-London investments

Constant talk about rising house prices in the capital could mean many potential landlords may be thinking about investing in a buy-to-let property in London.

However, a new report suggests that it may not be the best region to be a landlord because it actually has relatively low rental yields.

A study produced by BM Solutions found rental yields of properties in the capital are just 5.7 per cent - below the national average of 6.2 per cent.

Other regions of the UK - the north-west, north-east, West Midlands and Wales – all showed average rental yields of 6.4 per cent.

It also appears that the low returns are not down to long void periods. The research shows that just one in five London landlords have seen void periods during the last three months - 0.7 per cent less than in the previous three months.

The highest number of void periods across the UK was seen in the East Midlands and the north-east, where over two in five landlords have experienced empty properties.

So why are rental yields in London below the national average? The report from BM Solutions believes that it is because property prices are so high in landlord and therefore many landlords are already having to spend out on their investments. Once mortgage costs have been taken in to account, the profit margins can be quite tight.

Phil Rickards of BM Solutions said: "London has long been seen as the centre of the rental market, with demand outstripping supply and the shortest void periods. However, for the greatest return, looking further afield may be just as an attractive option with rental yields clearly higher out of the capital."

It may also come as a surprise that London does not have the strongest demand compared to other parts of the country. In outer London tenant demand has risen by 23 per cent and 13 per cent the centre of the capital.

However, in the south-east demand is up by 43 per cent and in Scotland landlords are seeing a 42 per cent growth in interest in their properties.

But landlords are still keen to ensure they enjoy strong returns so it is not likely that landlords will reduce rents in the near future.

According to the survey, 26 per cent of them plan to increase rents in the coming months by an average of 3.5 per cent. This would mean tenants paying around £25 more on the average UK rent of £715.

For those renting in London this increase will be more and could help buy-to-let landlords to improve their investment returns.ADNFCR-1222-ID-801738897-ADNFCR

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