Fri 10 Mar 2017
‘Rental yield’ is probably the most important measurement in residential investment property.
It is an indication of the level of return on an investment and is calculated by expressing a year’s rental income as a percentage of how much the property cost to buy.
For example, if you buy a property for £165,000 and you achieve a rent of £825 per month, then your gross yield will be 6%.
The ‘net’ yield takes account of fees, repairs and running costs such as service charges, maintenance costs, building insurance etc. Technically, you should also factor in the first year’s acquisition costs, such as agent fees, Stamp Duty and solicitors’ fees, as well as furnishing costs.
“Working on the national average, you can expect a gross yield of around 5.1% for a typical property in the UK. Be warned; the higher the outlay the lower the return as rental value does not necessarily keep pace with house price inflation. Put more simply: if you pay £1 million for a property, you should not expect a 5% return on it. Spread the money over 10 of the right properties and we are then talking a different story.” Tracey Glenn, Lettings Director at John German,
Investment properties in the Midlands
'Rental Yields' in excess of 6% for good investment properties can be quite easily found throughout the Midlands. You just need to know where to look.
John German Estate Agents residential sales and lettings team will gladly give you advice on which areas are best to for buy-to-let and what type of yield you could expect for a property.
Recent changes to buy-to-let mortgages
The buy-to-let market is highly competitive, many landlords/property investors are quick off the mark to offer on properties they know will provide a good yield.
TOP TIP: Ensure you have a chance against other investors is to get your finances in place.
Richard Lester from APT Financial Management highlights recent changes to buy-to-let mortgages and the potential issues you should be aware of have when applying for one.
“The Prudential Regulation Authority and the Financial Conduct Authority have imposed upon lenders stricter guidelines on affordability around the rental income a property must produce to justify a loan, making it difficult for some properties to be a viable proposition for lending.
Lenders now categorise buy-to-lets into two distinct categories; Consumer buy-to-lets and business buy-to-lets. Consumer buy-to-lets are where a property is let out but was not originally acquired for the purpose of letting. For example, if a client rented out their main residence because they had to re-locate or perhaps inherited a property and put it to the letting market. This falls under different affordability guidelines to business BTL’s.
In conjunction with these changes HMRC have imposed higher rates of stamp duty and changes to income tax when purchasing a second home or BTL property.
All these changes mean that it can be more challenging for potential landlords so the need for appropriate advice on obtaining a mortgage has never been more important.
Property investment can still be a very lucrative investment for the right person and the right property, but there is certainly a greater need to do your homework beforehand.”
To help you with this, we can put you in touch with APT Financial Management for FREE INDEPENDENT MORTAGE ADVICE.
"I was very happy with my experience as a John German client, from the initial valuation visit through to sale completion. Their staff were professional and attentive, keeping me updated throughout the process."