Rental yields in England hit three-year low

Quarterly rental yield figures released by Landlord Mortgages show rental yields in England have fallen to 5.87% in Q3 2005 from 5.97% in Q2 2005 – the lowest level in three years.

London also saw a drop from 5.99% in Q2 2005 to 5.82% in Q3 2005. However, Scotland bucked this trend and recorded a small recovery with rental yields rising from 6.47% in Q2 2005 to 6.77% in Q3 2005.

Although England and London saw a drop in rental yields, Landlord Mortgages says this is not necessarily bad news for the overall market.

Lee Grandin, managing director of Landlord Mortgages, says: “Although we have seen a fall in rental yields over the last quarter in England and Wales, the UK buy-to-let market is still healthy.”

“We believe that overall rental yields are dropping not as a result of reduced rental demand but due to other market factors. House prices are stabilising and, in some areas, even falling, forcing many vendors to drop the price of their properties in order to sell them.

“This has created an environment in which landlords are finding it harder to find below market value properties, as sellers can’t lower their prices further. This has led to yields on newly purchased properties falling causing overall yields to drop.

“Despite these falls, I believe that the market will remain relatively stable for the remaining quarter of 2005. With strong rental demand and a historically strong housing market, there is no need for investors to panic about their property investment.”

Scotland has consistently shown the best rental yields across the country since Landlord Mortgages started tracking rental yields in Q3 2002. Yields hit a high of 8.43% in Q4 2002 and in line with the general market trend have gradually dropped since then. They fell to a low of 6.47% in Q2 2005 before recovering slightly to rise to 6.77% in Q3 2005.

Grandin says: “Properties north of the border have always shown healthy rental yields due to a combination of strong demand for quality rental accommodation and lower house prices. On average, Scotland provides landlords with a 1.05% higher rental yield than those available in London or England.

“While most areas in Scotland are able to provide you with good investment opportunities, I currently tip Glasgow, Edinburgh and the Borders as my favourite hot spots with one-bedroom flats giving the best returns.”