Buy To Let Mortgages
Rental Yields Continue Downward Spiral
Scottish Yields continue to outperform the rest of the UK
July 2007: New data from Landlord Mortgages, the UK’s largest specialist buy-to-let broker, reveals that rental yields are continuing their gradual decline in Q2 2007. Despite this downward trend continuing throughout the UK, the highest yields are still to be found in Scotland, currently standing at 5.85% (a fall from 5.99% in Q1 2007). However, the largest declines were recorded in London (5.96% in Q1 to 5.38% in Q2) with a slightly less dramatic fall in England (5.82% in Q1 to 5.42% in Q2).
Chart One – Rental yield figures for buy-to-let properties (new and remortgage)
This pattern of falling rental yields is mainly due to high house price growth in recent years and relatively static rents. This is highlighted by the fact that London’s yields are falling at the highest rate – due to the phenomenal house price growth in the region. In contrast, Scotland’s figures are falling at a much slower rate, with the difference between Scotland and England rental yields rising from 0.28% in Q1 2007 to 0.43% in Q2 2007.
Despite this fall in rental yields, consumers are still actively interested in residential property investment. However, they are actively looking for ways in which to reduce the ‘running costs’ of their buy-to-let property. This trend is evidenced by the phenomenal year on year growth in the business transacted by our lettings agency, www.lettingagent.com, which offers a full management service for 8%. This is substantially lower than the average cost of using a high street agency – approximately 15%.
In addition to higher rental yields than the rest of the UK, the gap between yields available on newly purchased properties and remortgaged investments in Scotland has reached it’s lowest level in three years*. The difference between mortgage and remortgage figures in Q2 2007 stand at 0.07% in Scotland, whilst England and London’s figures remained relatively unchanged from last quarter (0.74% to 0.66% and 0.84 to 0.72% respectively).
Lee Grandin, Managing Director at Landlord Mortgages comments;
“As we can see, Scotland has continued to out perform the rest of the country in terms of rental yields. We can attribute this continual trend to the fact that there is greater investment occurring in the Southern regions – especially London. The huge City bonuses this year have lead to a surge of buy-to-let in the capital, pushing prices up in this area, as investors choose to purchase their buy-to-let property close to home.
“This concentration of investment has caused a great increase in capital appreciation in London, which is slowly spreading to the surrounding regions, especially the South East. This explains why London experienced a greater drop in yields than other regions this quarter. However, it is surprising to see that this ‘ripple effect’ has still not spread into Scotland, as we would have expected by now.
* = Since November 2003.
Research:
The research detailed above was compiled using data from the Landlord Mortgages database, which contains records of over 20,000 landlords.
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Rental
Yields
(COMBINED)
|
2004
|
|
|
2005
|
|
|
|
2006
|
|
|
|
2007
|
|
|
|
Q2
|
Q3
|
Q4
|
Q1
|
Q2
|
Q3
|
Q4
|
Q1
|
Q2
|
Q3
|
Q4
|
Q1
|
Q2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
England
(inc
London
)
|
5.99
|
6.22
|
6.03
|
6.08
|
5.97
|
5.87
|
6.15
|
5.91
|
5.69
|
5.54
|
5.82
|
5.70
|
5.42
|
|
London
|
5.93
|
6.09
|
5.96
|
6.08
|
5.99
|
5.82
|
6.58
|
6.07
|
5.70
|
5.53
|
5.96
|
5.76
|
5.38
|
|
Scotland
|
8.02
|
6.92
|
6.88
|
7.37
|
6.47
|
6.77
|
6.27
|
6.58
|
6.48
|
5.91
|
6.88
|
5.99
|
5.85
|
|
Combined
- Rental Yields for Remortgage and mortgage
|
|
|
2002
|
2003
|
2004
|
2005
|
2006
|
|
|
|
|
|
|
|
|
England
(inc
London
)
|
7.1
|
6.49
|
6.09
|
6.02
|
5.74
|
|
London
|
6.37
|
6.22
|
5.99
|
6.11
|
5.81
|
|
Scotland
|
8
|
7.59
|
7.27
|
6.72
|
6.46
|
