Rental yields hit three-year low

Ramesh Sharma

June 1, 2004

Rental yields have dropped from 5.97 per cent in the second quarter of 2005 to 5.87 per cent in the third quarter. However, Lee Grandin, managing director of Landlord Mortgages, pointed out it was not necessarily bad news for the overall market.

“ Overall rental yields are dropping not as a result of reduced demand but due to other market factors,” he explained. “Prices are stabilising and even falling, forcing many vendors to drop prices to sell. Landlords are finding it harder to find under-market-value properties, as sellers can’t lower prices further. This has led to yields on newly-purchased properties falling, causing overall yields to drop.”

“ Despite these falls the market will remain relatively stable for the remaining quarter of 2005. With strong rental demand and a historically strong housing market there’s no need for investors to panic,” he added.

Darren Pescod, managing director of Mortgage Broker Group Ltd, said: “Another reason for rental yields falling would be the abundance of available properties to let. The average investor who’s just entered buy-to-let would rather be assured of a tenant, albeit at a slightly lower rent causing the rental yield to fall, than have a long period without tenants and paying the full mortgage cost out of their own disposable income.”

“ Tenants are also aware of the abundance of properties on the market and are not ashamed to negotiate on the rental terms,” he added.

Scotland recorded a small recovery with rental yields rising from 6.47 per cent to 6.77 per cent. Grandin commented: “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.”

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