Buy-to-let yields remained strong in the second half of 2017, but real returns from this sector continue to fall, according to new figures from BM Solutions.
The specialist buy-to-let lender says buy-to-let investors earned an average gross rental yield of 5.2 per cent in the second half of 2017.
But with inflation (as measured by the Consumer Price Index) edging up to 2.9 per cent during this period, this meant a real return of just 2.3 per cent for landlords.
This is down from the 4.3 per cent real return landlords earned in the six-month period to the end of 2016.
BM Solutions says the average monthly rent received by landlords during the second half of 2017 was £750.
However these national averages mask significant regional variation. BM Solutions says a “distinct North-South divide prevails” with the highest yields available in the north but the highest monthly rents still paid on properties in London and the South East.
Properties in the north of England had the highest annual yield over this period – at 6.9 per cent. This was followed by Northern Ireland, with an average yield of 6.2 per cent, then the North West, Yorkshire and the Humber, and Wales – all yielding 6 per cent.
In contrast the lowest yields are in London (4.5 per cent) followed by the South East and the South West (both 4.8 per cent).
The average rent in the capital remains significantly higher than the rest of the UK, at £1,540 a month. But London was the only region to see rents fall in the last six months of 2017 compared to the same period in 2016.
The average monthly rent in the capital is 105 per cent higher than the UK average, and 40 per cent more than rent in the South East – the next most expensive region, with average rents of £1,097 a month.
Northern Ireland has the lowest rent in the UK, at an average of just £452 per month.
Buy-to-let market transactions remain broadly stable after tax changes implemented in April 2016 distorted the market. The number of buy-to-let property purchases in this six-month period was 38,400, up by just 100 transactions when compared to the same period the year before.
This follows a period of distortion in the market with landlords bringing forward purchase at the end of 2015, to avoid higher stamp duty charges that were imposed in April 2016. This led to a sharp drop in year-on-year transaction in the second half of 2016.
BM Solutions said overall the number of buy-to-let purchases (with a mortgage) in 2017 were 27 per cent lower than in 2016.
BM Solutions head Phil Rickards says: “At the end of last year landlords will have seen rental yields remaining broadly stable.
“However, taking into account stamp duty changes in April 2016, the loss of tax relief on mortgage costs and the tighter regulation of affordability assessments, combined with higher prices, it’s not surprising that landlords in the southern regions and London are seeing the lowest yields.”
But he adds that the market is holding up well, despite the raft of regulatory changes seen in recent years.