Official: Rental Yields Hit 5 Year Low And Sinking

[Realistbear]

http://www.moneyextra.com/news/news-rental...lds-026268.html

Rental yields hit five-year low

Landlord Mortgages, the buy-to-let mortgage outfit, has revealed that rental yields hit a five-year annual low in 2006. Scottish rental returns showed the largest drop over the period, falling from 8% in 2002 to 6.46% in 2006. Less dramatic declines were recorded in England (7.1% to 5.74%) and London (6.37% to 5.81%).

To add pain to the misery, the Land Registry reported 3 months of HPI slowing last year with Halifax crowning the good news with a 1% drop in December.

BTLers are right to be panicky.

Edited January 9, 2007 by Realistbear

[dnd]

I think the ones that are only just breaking even are justifying their purchase on the basis of long term capital gain and that 'house prices only go up' (plus their pension is probably sh*t)

...well, that's what their mates, EA, bank and media told them...

Edited January 9, 2007 by dnd

[since the beginning]

When house prices have increased 300% in 10 years, you would hope that yields are falling an equivilent rise in rents would mean £1200-1400 for a room in a house share.

[dnd]

When house prices have increased 300% in 10 years, you would hope that yields are falling an equivilent rise in rents would mean £1200-1400 for a room in a house share.

That's 'affordability' of a mortgage for you...

[Guest Yeahbutnocrash]

http://www.moneyextra.com/news/news-rental...lds-026268.html

Rental yields hit five-year low

Landlord Mortgages, the buy-to-let mortgage outfit, has revealed that rental yields hit a five-year annual low in 2006. Scottish rental returns showed the largest drop over the period, falling from 8% in 2002 to 6.46% in 2006. Less dramatic declines were recorded in England (7.1% to 5.74%) and London (6.37% to 5.81%).

To add pain to the misery, the Land Registry reported 3 months of HPI slowing last year with Halifax crowning the good news with a 1% drop in December.

BTLers are right to be panicky.

I think you'll find the effect of this is more a case of making BTL less attractive to new prospective BTLers

I expect established ones will be glad to see a few incompetent ones 'weeded out' - IE. less competition...

Even if there is a correction as you want (so prices are more affordable) the established B2Lers would then be able to add to their portfolios

Edited January 9, 2007 by Yeahbutnocrash

[Jason]

I think you'll find the effect of this is more a case of making BTL less attractive to new prospective BTLers

I expect established ones will be glad to see a few incompetent one's 'weeded out' - IE. less competition...

If so, who will be supporting the market from the bottom? Not FTBs they account for a far smaller propertion of the market compared to the past.

[Guest Yeahbutnocrash]

If so, who will be supporting the market from the bottom? Not FTBs they account for a far smaller propertion of the market compared to the past.

I edited my original comment to add this:

Even if there is a correction as you want (so prices are more affordable) the established B2Lers would then be able to add to their portfolios

(Eventually I expect there will be a slow-down or perhaps a correction but I don't claim to know when or by how much)

Edited January 9, 2007 by Yeahbutnocrash

[starship fighter]

i currently rent a two bedroom mid terrace for £525 a month. the contract expires in march and we are definitely moving; for the same money we can now rent a three bedroom semi with garage, or alternatively pay £450 for an equivalent property. these falls have occurred, it seems, in the last 12 months as more and more flats have come onto the market in sheffield. i have no doubt at all that landlords across the city are sweating it...

[dnd]

If so, who will be supporting the market from the bottom? Not FTBs they account for a far smaller propertion of the market compared to the past.

Established BTL

People want to own their own homes - not rent off a sociopathic landlord

I can't imagine any carry-trade/immigrant/restricted planning policy supporting government is going to be tollerated in office again to satisfy the needs of a minority of establihed BTL landlords....

[Europa]

BTLers are right to be panicky.

But are they really panicky?

A BTLer who bought a property 12 months ago will, on average, be 10pc up on a geared investment. Not a bad position at all.

Many continue to take the "long term view". 25 years from now, they can either sell the property, repay the original sum (which will have been eroded by inflation), and pocket the gains, or (in the case of a repayment mortgage) own a property outright.

You put too great an emphasis on yields. A typical pension involves monthly contributions, so why would a property investor worry about topping up the tenant's rent by a few pounds a month?

[Europa]

Established BTL

People want to own their own homes - not rent off a sociopathic landlord

I can't imagine any carry-trade/immigrant/restricted planning policy supporting government is going to be tollerated in office again to satisfy the needs of a minority of establihed BTL landlords....

That's worrying. Your best hope seems to be that the government will "do something".

[Nonnamouse]

http://www.moneyextra.com/news/news-rental...lds-026268.html

Rental yields hit five-year low

Landlord Mortgages, the buy-to-let mortgage outfit, has revealed that rental yields hit a five-year annual low in 2006. Scottish rental returns showed the largest drop over the period, falling from 8% in 2002 to

6.46%

in 2006. Less dramatic declines were recorded in England (7.1% to

5.74%

) and London (6.37% to

5.81%

).

To add pain to the misery, the Land Registry reported 3 months of HPI slowing last year with Halifax crowning the good news with a 1% drop in December.

BTLers are right to be panicky.

Aren't those yields rather good though, all things considered?

If that is the average return then it seems to assume that only the recent BTLers are potentially in trouble, as I would assume that many of those see no yield whatsoever.

If that were to be the case then does this effectively not imply that the average yield for everyone else is in fact higher?

Mind you I never believe any "average" figures because they are so easily skewed.

[Guest Yeahbutnocrash]

i currently rent a two bedroom mid terrace for £525 a month. the contract expires in march and we are definitely moving; for the same money we can now rent a three bedroom semi with garage, or alternatively pay £450 for an equivalent property. these falls have occurred, it seems, in the last 12 months as more and more flats have come onto the market in sheffield. i have no doubt at all that landlords across the city are sweating it...

So the LL you are moving to will not be sweating and may be glad if some of the competition leaves...

[Jason]

I'm sure some Established BTLers withh buy more property when it's cheaper. But those BTLers are probably people who know all the arguments that are discussed on here. Do you think they will be buying after a short downturn? I doubt it, they will wait for the bottom. Whereas potential homeowners, as dnd states, will buy property to be their home - they are not interested in judging the bottom of the market.

On top of this, I expect some current BTLers to sell. Remember most rentable property today is owned by Landlords who bought in the last (3 or 4) few years, have a look at ARLA for more info.

[dnd]

That's worrying. Your best hope seems to be that the government will "do something".

It's a market economy currently being shaped by government policy - policy change ie change of government is adequate

[Jason]

Also just to point out, all of the reported yields Landlord Mortgages are the most optomistic. ARLA shown yields of 5.04% in Q4, RICS have stated yields are 5%, and most of all RICS has stated NET yields are 3.25%.

All of those sources are VIs, so if any exageration it will be upwards. Take a look at rents on Rightmove most yields are advertised around 5%.

[Guest Yeahbutnocrash]

Established BTL

People want to own their own homes - not rent off a sociopathic landlord

I can't imagine any carry-trade/immigrant/restricted planning policy supporting government is going to be tollerated in office again to satisfy the needs of a minority of establihed BTL landlords....

As RB was posting about BTL I was initially commenting on BTL

He tries to give the impression that the entire B2L market is in crisis so in the first place I was responding to that obvious distortion

If affordability improves after over-stretched FTB's & BTL's have been 'weeded out' causing a correction (as many Bears want) then new FTB's will I hope be-able to enter the market - but so will established BTLers and possibly many new ones...

Edited January 9, 2007 by Yeahbutnocrash

[Nonnamouse]

If affordability improves after over-stretched FTB's & BTL's have been 'weeded out' causing a correction (as many Bears want) then new FTB's will I hope be-able to enter the market - but so will established BTLers and possibly many new ones...

Professional investors will do what they do in any market - if the figures stack up and they can see a profit they will buy, but not in a falling market.

They don't believe in the "hope" factor.

Like everything else it is a question of balancing the risk against the reward.

[dogbox]

Realist you cite B2L as the worst investment in years in view of 5 - 6% yields, yet for a long time you sung the merrits of Gold WHICH HAS ER NO YEILD, ZILCHO, NUMERO UNO and cant realistcaly be geared either.

[Europa]

Realist you cite B2L as the worst investment in years in view of 5 - 6% yields, yet for a long time you sung the merrits of Gold WHICH HAS ER NO YEILD, ZILCHO, NUMERO UNO and cant realistcaly be geared either.

Ah, but gold had the advantage of capital growth Dogbox

Yet BTLers who looked to growth to justify their investments were thoroughly disparaged, especially while they enjoyed measely 10pc gains during 2006.

[Te Mata]

...Gold...cant realistcaly be geared either.

Rubbish!

Never heard of futures?

[Guest Yeahbutnocrash]

I'm sure some Established BTLers withh buy more property when it's cheaper. But those BTLers are probably people who know all the arguments that are discussed on here. Do you think they will be buying after a short downturn? I doubt it, they will wait for the bottom. Whereas potential homeowners, as dnd states, will buy property to be their home - they are not interested in judging the bottom of the market.

On top of this, I expect some current BTLers to sell. Remember most rentable property today is owned by Landlords who bought in the last (3 or 4) few years, have a look at ARLA for more info.

Established B2Lers who want to invest will be on the look-out for a property where their sums add up. A deal is always a deal.

However the lower the market goes then more and better deals may be around so you'd then expect more activity of course

Don't forget one thing you can't buy is time itself (very important that fact - don't underestimate it) It can take a while to build up a portfolio so an investor will buy if he sees his sums add up - Then he can be on the look-out for his next one which could be next month, or could be next year

As the Market is high now it's a case of it being harder to find such deals now though not impossible. eg. Buy at auction or buy a small low end flat in the right location or even an HMO in the right location. Returns would be better than a 'new build flat' as is often cited on HPC

I agree some JC2L's will have to sell

I'm aware that probably over 50% of current LL's only started in the last 4 years but that does not mean they hold the majority of rented property. Of the new LL's those who bought 3 or 4 years ago may well be doing ok. I suspect there's more of a risk for those who have bought the wrong type of properties in the last 2 years. For example: New build flats with 2 years rent guaranteed at purchase

[Realistbear]

Realist you cite B2L as the worst investment in years in view of 5 - 6% yields, yet for a long time you sung the merrits of Gold WHICH HAS ER NO YEILD, ZILCHO, NUMERO UNO and cant realistcaly be geared either.

Gold? I am possibly more bearish on gold than houses! Consistently said it is too volatile and a "fiat metal" worth what people think its worth withj little intrinsic value other than to those who make Tom Foolery.

I am no gold bug.

[Guest Yeahbutnocrash]

Professional investors will do what they do in any market - if the figures stack up and they can see a profit they will buy, but not in a falling market.

They don't believe in the "hope" factor.

Like everything else it is a question of balancing the risk against the reward.

I agree that is what happens (and made that point myself in a later post)

However in this reply I was mainly including my comments on FTB's

I'm making the obvious point that if affordability improves there would be more opportunities for FTB's and BTLers alike

Edited January 9, 2007 by Yeahbutnocrash

[Guest Yeahbutnocrash]

Ah, but gold had the advantage of capital growth Dogbox

Yet BTLers who looked to growth to justify their investments were thoroughly disparaged, especially while they enjoyed measely 10pc gains during 2006.

You are making the classic error of lumping all BTL's together - What if they bought with only 10% - 15% down on a repayment mortgage?