Landlord yields could slip into red £1 coins stacked

Landlord yields could slip into red, warns letting agent

Landlords have been warned that gross rental yields could slide from 8.9% to 3.4% by April 2016

Landlords could see their earnings from renting out homes plunge by 60% over the next 12 months if market trends stay on track, predicts one of the country’s largest letting agents.

Gross rental yields could slide from 8.9% to 3.4% by April 2016, leaving many buy to let landlords in the red once they deduct running costs from their property earnings.

The warning comes from LSL Property Services, the firm that runs letting agent chains Reeds Rains and Your Move.

Rental Yield

Director Andrew Gill explained yield is the landlord’s return on investment and accounts for rents received and any increase in property value during a year.

The firm has calculated in the year to April 2015, the average buy to let saw a return of £15,503.

Rents accounted for £8,247 of this amount, while a rising house value of £7,256 made up the rest.

However, the current rent and home price trend suggests that at the same time next year, the yield will have fallen to £6,256, with rents accounting for £9,292, while property values fall an average of £3,036.

2015/16 Rent Trends

The buy to let report agreed forecasting yields over the next year is a problem, but if trends continue, the average landlord would see yields drop despite continuing rent rises because prices would fall.

“Rising property prices should be seen as a bonus by landlords, who should focus on the improving prospect of a steady rental income,” said Gill.

"Price dips in recent months are unlikely to continue for a long time, which makes predictions for the next year more difficult than usual."

Rental Yield Calculation

Yield is calculated by dividing annual rents by the property value – so a buy to let generating £12,000 a year rent that is worth £300,000 produces a gross yield of 4.0%.

The net yield is rent less running costs, such as mortgage interest, repairs and insurance, divided by the property value.

Landlord Insurance

Added: 15th September 2015