Rental yields stagnate…but capital growth is performing well

Buy to Let Mortgage specialist BM Solutions says the average rental yield fell in the second half of 2013, from 5.6% to 5.5%, with the lowest (an average of 4.8%) found in London. This is being driven by a combination of high house prices and small rent increases. London house prices are of course especially high (the average is £409,881), as are operating costs. The average house price in, say, the North East is just £98,292. Nationwide calculates that UK house prices have increased by 9.2% on average over the past 12 months (although their figures differ slightly from BM Solutions).

In contrast, the average rent across England and Wales increased by just 0.9% over the year to £741 per month on average in March, according to LSL Property Services. This is the result of greater supply to renters as more people seek to gain the benefits of investing in buy to let. Despite this stagnation of rental yields, capital growth is performing well with the house price increases, meaning that overall buy to let returns will remain very strong in the long-term.

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