Research by Direct Line for Business has looked at the wide variations in rental yields in different UK regions.
House prices over the last three years have risen by an average of 17%, but private rents for residential properties increased by only 4.7%.The average rental yield is 3.6% in the UK, but in some regions, yields are as high as 7.1%. Burnley in Lancashire was the most profitable region, with average rental yields of 7.1%. The average house price in the area is £76,300, with typical annual rents of £5,388. Behind Burnley were Glasgow at 6.9% and Belfast at 6.4%.
London and the South East have the poorest yields. Average rents in London are high at £20,000 per annum, but the average house price is around £480,000. This provides a rental yield of only 4.4%.
Financial expert Daniel Bailey, commenting on the figures, said:
“Most of my buy-to-let investors don’t tend to pay more than £125,000. If they go beyond that then the yield tends to not be as good.
“Purchase price is a major factor and some areas will attract a better monthly rent. I have some clients achieving yields of 7% to 10%.”
He advised investors to talk to mortgage brokers and property tax experts for advice before buying new property. After suitable property has been found, investors need to write a business plan that includes the expected rental yield. This can be examined by a broker, who can arrange a commercial mortgage or bridging loan to help fund the purchase.