February 2012 News

Buy-to-let returns top 10% a year says, Nicholas Humphreys

7th February 2012

Landlords are securing double-digit annual returns in parts of Loughborough and Derby as the resurgence in the buy-to-let market continues to strengthen.

Yields from buy-to-let properties nationwide (which show rental income as a proportion of property price) were 5.4% last year – the best since 2003.

In contrast the FTSE All-Share index yields 3.8%, UK government bonds pay 2%, and Bank rate is just over 0.5%.

Mr Humphreys said “Rents are rising, capital values are flat and yields are improving, providing the strongest signal to investors in more than a decade”.

The buy-to-let market has seen unprecedented growth over the past two years, fuelled by a growing demand for rented homes.  This is partly as a result of the difficulties in securing mortgages in the aftermath of the credit crunch.

“In the long term the buy-to-let market will remain strong, supported by structural factors such as the inability of people to get on the housing ladder” added Humphreys.

A survey released this week will show that first-time investors are piling into the buy-to-let sector in ever greater numbers in search of strong yields, as returns on cash remain at an all time low.

The survey of brokers by Paragon, the specialist lender, found that almost one of four loans went to first time landlords in the final three months of the year, the highest level since 2006.

What mortgage deals are available?
The average interest rate on a buy-to-let loan has dropped from 5.31% to 4.79% over the past two years, according to Marmalade Mortgages. The number of deals available has soared from 243 to 486 over the same period.

The best buy for those with a 25% deposit is a two year fix from Nottingham building society at 4.19% with a £1,299 fee.

Recently a number of lenders have introduced deals for landlords with only a 20% deposit. The most competitive interest-only deal is from Leeds building society at 5.69% for a two year fix. It has a £999 fee.

What returns can I achieve?
Lenders generally require rental income to be 125% of their standard variable rate (SVR) or your introductory mortgage rate, whichever is higher.

To qualify for the Nottingham deal, which has an SVR of 4.5% you would need a yield of 4.2%, whereas borrowers taking the deal from Leeds, which has an SVR of 5.99% would require a yield of 5.99% - more than the national average.”

For more information visit the industry leading website at www.nicholashumphreys.com