Generating top rental yields can be the best way of ensuring an overall strong return on your investment, and there are a number of ways landlords can achieve the best results.
The UK’s private rented sector remains “a great place to be”, according to Zoopla boss and 25-year industry veteran Richard Donnell, who has called out some media outlets for spreading “noise and misinformation” about the sector.
He also advises landlords to ignore house price growth and focus on cashflow – in a nod towards investors placing more emphasis on the rental yields they can generate over the long term as opposed to any capital appreciation they may ultimately see.
This focus on the long-term is what acts as a buffer for seasoned investors when it comes to the peaks and troughs and changing trends of the property market, as the overall trajectory over the past several decades has remained positive. Demand in the private rented sector is set to remain extremely high, meaning the need for rental homes from buy-to-let landlords is unlikely to change when looking at current projections.
Strong rental yields “a key measure of health”
With a renewed focus on achieving strong rental yields in order to maximise the value of an investment, many landlords and property investors are reassessing their strategies – and their portfolios – to ensure that they are getting the most out of their properties.
This is particularly important during times of high interest and mortgage rates, and potential changes to rules and regulations, such as with energy performance ratings, that could be set to change things for some landlords.
According to research from Paragon Bank, rental yields are currently at a 10-year high, hitting an average of 6.3% in the second quarter of this year. The last time rates surpassed this level was in Q3 2012, when they reached 6.7%, while they hovered at the same level in 2014.
The fact that they are so strong at the moment is “fantastic to see”, says Paragon’s managing director for mortgages Richard Rowntree, who says rental yields are “a key measure of health in the lettings business.
Who is achieving the best yields?
According to Paragon, landlords with the largest portfolios tend to generate the highest average yields. Those who own 11 or more properties are reporting rental yields of an average of 6.9%. This could be due to them being more experienced landlords who focus solely on high-yielding properties and locations.
Limited company landlords also reported the highest average yields, again of 6.9%. Buying rental properties under a limited company structure has become increasingly popular in recent years as a way of mitigating certain tax changes, such as the removal of mortgage interest tax relief, while also offering potential savings in other ways.
Another landlord type to achieve the strongest rental yields, according to Paragon, is those who own houses in multiple occupation (HMOs). They report average yields of 7.2%, which is the highest of any property type.
HMOs are larger properties (three or more bedrooms) where each room tends to be let out on a separate tenancy agreement, to unrelated parties. This means they often bring in higher rents, and have fewer void periods as there is only a room to fill when a tenant decides to leave, rather than the full property sitting vacant.
When it comes to location, stronger rental yields tend to be found in the north. In recent research from Zoopla, the North East was labelled as the highest-yielding region in England at 7.65% on average, followed closely by the North West at 6.66% and Yorkshire and the Humber at 6.38%.
These locations can also be particularly popular among property investors seeking a smaller outlay, as house prices in these areas tend to be below the national average. Rental demand is also high, particularly in the regions’ major cities, meaning strong competition for rental homes.
If you’re looking for your next property investment opportunity and generating high rental yields is a priority, get in touch with BuyAssociation today to find out about some of our current and upcoming projects.
