While it very much remains to be seen whether or not the government’s recent moves to increase the cost (and inconvenience) of being a BTL landlord will actually be of any meaningful benefit to home buyers in general and first-time buyers in particular, it can clearly be seen that the growth in rental yield has been slowing, in some cases to a halt, although for the most part it is holding steady rather than dropping.
Eight out of twelve regions show some level of increase in rental yield
Figures from the HomeLet index show that as of February this year, 8 out of 12 UK regions showed some degree of increase in rental yield, although in some cases only a modest one. London saw marginal growth, which is still promising in the light of the uncertainty caused by the Brexit situation. Both Yorkshire and the Humber and the East Midlands saw strong growth year on year and month on month. It’s unlikely to be a coincidence that both of these areas have extensive student populations, which are continually growing. The four areas in which yields were static or dropped were: Scotland, Wales, the South West and the North East.
Analysing the weakest regions
Only Scotland showed drops both year on year and month on month. This is hardly surprising given that both LBTT (the Scottish equivalent of stamp duty) and council tax are charged at higher rates on more expensive properties than they are over the border and this impacts landlords whose portfolios include houses for multiple occupation, which are such a feature of the student rental market.
In Wales, yields dropped month on month but rose year on year, so it is rather too early to say if this monthly drop is the start of a trend. In both the South West and North East, yields remained the same year on year. In the former they also remained static month on month and in the latter there was a slight drop month on month. These regions may therefore be worth watching for further developments.
HomeLet’s research shows that landlords are very aware of the fact that the costs of buy-to-let properties for sale are on the point of increasing substantially, in particular the changes to mortgage tax relief, which are due to come into force this April, will increase costs for many landlords who have a high enough income to pay tax at the higher or additional rate, but who are unable to finance house purchases with cash. Half of the 3726 landlord’s surveyed indicated that they thought that they would need to raise rents to keep their business viable but almost a third said that they aimed to postpone any increases to 2019 at the earliest.
While the results of this survey suggest that landlords are well aware of the fact that people need to be able to plan their financial lives and therefore appreciate rental stability and that many tenants are likely to have concerns about their own employment stability and hence their ability to make ends meet, the fact still remains that rising costs will have to be paid by someone.