The latest research from lettings and estate agent, Benham and Reeves, has shown that while net rental yields have increased over the last year, they sit at just 3.4% once the costs of maintaining a buy-to-let property are accounted for.
Benham and Reeves analysed the gross rental yield of the average buy-to-let property before comparing this to the net yield actually secured once annual running costs are accounted for.
The research shows that currently, investing in the average buy-to-let property across the UK will set you back £289,824, with the average property currently commanding £1,276 per month in rent. This equates to an income generated to the tune of £15,312 per year, a gross rental yield of 5.3%.
The good news is that this gross rental yield has climbed over the last year, up from 4.8% in the last 12 months.
However, Benham and Reeves then looked at the net yield secured once the cost of maintaining a buy-to-let is accounted for. The costs incurred include letting agent fees (£1,837), general maintenance costs (£2,898), the cost of an annual gas safety certificate (£80), an electrical safety report certificate (£225) and landlord insurance (£427).
In total, these additional costs come to £5,468 for the average UK landlord, meaning their estimated annual income generated is reduced to just 39,844 for the year.
As a result, the net yield secured on the average buy-to-let property comes in at just 3.4%, albeit this figure has climbed from 3% over the last year. However, these ongoing costs don’t include the average cost of repaying a buy-to-let mortgage which currently sits at £1,201 per year.
Additional research by Benham and Reeves also highlights how inflation is impacting buy-to-let profitability when it comes to the cost of furnishing a rental home.
In the last year alone, the cost of furniture essentials has climbed across the board, with electric cookers seeing the largest increase, climbing by 12.3% in price.
Curtains have seen an 8.8% cost increase, dishwashers are up 6.7%, an armchair now costs 5.7% more than a year ago, with washing machines (+5.2%) and wardrobes (+4.8%) also seeing some of the largest price hikes.
Director of Benham and Reeves, Marc von Grundherr, commented:
“While gross yields have remained fairly favourable the reality of buy-to-let investing is that there are a whole host of additional costs that need to be considered and accounted for, all of which eat further into the profit margins of landlords.
This is a small detail that the Government has largely neglected to consider when waging war against the sector and introducing numerous legislative changes designed to dent profitability.
What’s more, the cost of goods remains considerably higher than they were just a year ago and so even furnishing a property to an acceptable standard can be an expensive endeavour.
The silver lining is that while the average net yield may sit at just 3.4% currently, this has increased in strength over the last year and so the consistency of buy-to-let investing remains, albeit not to the same extent as we’ve previously seen.”
|United Kingdom – B2L yield example excluding mortgage interest costs||Last year||Now||Sources|
|Category||Gross rental yield – last year||Net Rental yield – last year||Gross rental yield – now||Net Rental yield – now|
|Average house price (July 2022 and 2023)||£288,156||£288,156||£289,824||£289,824||Gov – UK House Price Index|
|Average rent per month||£1,159||£1,159||£1,276||£1,276||HomeLet|
|Est income generated by property||£13,908||£13,908||£15,312||£15,312|
|Letting agent fees per year – full management (approx 12% inc VAT)||–||£1,669||–||£1,837||Rent London, Property Hawk, Rent Round and Simply Business|
|General maintenance costs per year (approx 1% ave house price)||–||£2,882||–||£2,898||The BLA|
|Annual gas safety certificate check||–||£80||–||£80||Checkatrade|
|Electrical safety report certificate and EICR||£225||£225||Price Your Job|
|Landlord insurance per year||–||£427||–||£427||Nimblefins|
|Tenant default / rent guarantee||–||£73||–||£73|
|Legal expenses cover||–||£40||–||£40|
|Home emergency (boiler/heating/electric)||–||£144||–||£144|
|Est annual total costs||–||£5,283||–||£5,468|
|Est annual income generated by property||£13,908||£8,625||£15,312||£9,844|
|Est yield %||4.8%||3.0%||5.3%||3.4%|
|United Kingdom – B2L mortgage|
|Average property price||£288,156||£289,824||Gov – UK House Price Index|
|Deposit at 25%||£72,039||£72,456||Money Helper|
|Mortgage loan required||£216,117||£217,368|
|Ave mortgage rate||3.43%||4.44%||Money Facts|
|Term||25 years||25 years|
|Full repayment (per month)||£1,074||£1,201|
|Interest only payment (per month)||£618||£804|
|Table shows the cost increse of various furniture items found within a buy-to-let property|
|Item||Ave price last year||Ave price now||Est change £||Est change %|
|Source: The Office for National Statistics|
1. Gross rental yield is calculated using the price of the property and the income generated by the property
2. Net rental yield is everything after expenses. Net rental yield is calculated using the price of the property, the income generated by the property and the associated costs and fees of owning a property
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