Revealing the Real BTL Yields

Reports of a booming rental sector have no doubt encouraged investors to enter the buy-to-let market, searching for higher returns in stagnant economic conditions and low interest rates. Whilst gross rental yields can look attractive, new research from the property website Home.co.uk reveals that it is important for investors to understand the real yield which also takes into account the change in value of the investment property.

The latest study from Home.co.uk looks to assess the impact of changing capital values to produce a more realistic view of rental yields and the real investment potential.

The analysis, carried out in February 2013, is based on typical 2 bedroom properties (median asking prices and rents) and combines changes in the capital values and gross rental yields to reveal a new top 10 of property investment hot-spots and a fresh view of the UK market for buy-to-let investors.

Top 10 Property Investment Locations - based on Real Rental Yields for 2-bed properties

Location % change in average sales price vs. Feb’12 Gross rental yield REAL YIELD1
1 - Shoreditch 32.22% 4.33% 36.55%
2 - Bloomsbury 33.52% 3.02% 36.54%
3 - Bethnal Green 28.81% 4.89% 33.70%
4 - Elephant & Castle 27.78% 4.29% 32.07%
5 - Chelsea 28.14% 3.06% 31.20%
6 - Bermondsey 26.44% 4.54% 30.98%
7 - Battersea 25.00% 4.12% 29.12%
8 - Hammersmith 25.01% 4.02% 29.04%
9 - West Brompton 25.01% 3.81% 28.82%
10 - Vauxhall 25.00% 3.64% 28.64%

Doug Shephard, director at Home.co.uk, commented;

"Most landlords appreciate that gross rental yields do not take account of the costs of maintaining, letting and insuring a property, yet many fail to consider the rise and fall of capital values in this equation."

"Whilst we would expect the key rental hot spots to typically mirror economic activity across the country, the big revelation in this new research is that the highest real yields are all in London. Despite the initial high capital costs, the combination of accumulating capital value and reasonable gross yields can make these areas look very attractive to potential investors."

"It's also important to note that these top-performing areas are all in central London, a specialised sub-market of the wider UK property market and one where many of its residents have survived the recession well. The people who reside in such areas have maintained their employment status and continue to enjoy a successful career path. Key demand drivers are equally about easy access to work and social networks. Shoreditch is a perfect example and the consistent high demand for such properties has kept both sales and rental prices on an upward trajectory."

"Given our new take on yields, at the other end of the scale there are areas of the UK where landlords are losing money just by owning the property, even if their properties not subject to void periods and attract healthy gross yields." The real yield for Margate, for example, is a nightmarish -9.8% despite a gross rental yield of 5.1%.

Sources: Home.co.uk Home Asking Price Index.

1.'Real yield' is defined as rent + capital appreciation of the underlying asset. Typical (median) figures for two bedroom properties were used in the calculations. To ensure that the results are statistically significant, all locations had at least 100 properties currently for sale and for rent.

Notes for Editors

Over the last 28 years, Home.co.uk has become established as a dynamic, innovative and ethical service. By providing the UK's most comprehensive Property Search and Estate Agents directory coupled with detailed House Price analysis, Home.co.uk delivers the real power of the Internet to inform and empower estate agents, homebuyers, renters, landlords and sellers in across the UK.

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