London offers lowest rental yields

Ryan Fowler

July 23, 2014

The latest BM Solutions/BDRC Continental Landlord Panel research revealed that the average rental yield in Q2 2014 stood at 6.2%, with London commanding rental yields of 5.7%.

The North West, North East, West Midlands and Wales were the most profitable regions in Q2 with average rental yields of 6.4%.

Some 42% of landlords have seen rents increase in the areas where they let over the last 12 months, down 3% from Q1 2014. Following a similar trend, just a quarter (26%) of landlords are planning to increase rents across their portfolio in the next six months, down 2% from the start of the year.

More than one in three landlords (35%) have increased rents in the last 12 months, by an average of 3.5%. Typically, landlords report spending a quarter of their rental income on maintenance costs.

Phil Rickards, head of BM Solutions, said: “London has long been seen as the centre of the rental market, with demand outstripping supply and the shortest void periods.

“However for the greatest return looking further afield maybe just as an attractive option with rental yields clearly higher out of the capital.”

Over a third of landlords (37%) reported seeing an increase in tenant demand in the areas they let over the past three months, with 10% saying it had risen significantly.

Tenant demand is particularly strong in the South East and Scotland where more than two in five perceive it to be rising; whilst it continues to be perceived as weak in the North East.

The average tenancy duration is 2.4 years, although a significant minority (9%) stay in the same rental property for over five years.

Some 26% of landlords plan to increase the level of rent commanded, by an average of 3.5%. This would mean an additional £25 on the average rent of £715.

Half of landlords report their prospect for capital gains over the next three months as either ‘good’ or ‘very good’, up 50% year-on-year.

Similarly, prospects for the UK financial markets have also improved significantly, up from just 13% rating prospects as ‘good’ or ‘very good’ in Q2 2013, to 37% who are now feeling positive in Q2 2014.

And two in five landlords have experienced rental arrears in the last 12 months and have had an average of two tenants in arrears over the last quarter with 42% of tenants owing less than £500.

A third of landlords have experienced voids in Q2, a similar proportion to Q1. However, the incidence of voids increases at the higher end of the market (+6%pts for landlords with 11-19 properties, and +8%pts for those with 20+ properties).

The highest incidence of voids is in the North East and East Midlands where more than two in five landlords have experienced voids in the past three months.

The incidence of voids has however been decreasing in London, in particular in Central London where one in five landlords have experienced this issue in the last quarter (-7%).

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