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Balancing buy-to-let: yields versus costs
The UK remains obsessed with the property market. Be this in the form of house prices, rents, the costs associated with borrowing and the margins for landlords. And while yields remain strong, there’s an ever-changing array of additional costs which landlords have to carefully account for.
Yields
The latest research from Benham and Reeves analysed the gross rental yield of the average buy-to-let property compared to the net yield actually secured once annual running costs are considered. This concluded that investing in the average buy-to-let property across the UK will cost £289,824, with the average property currently commanding £1,276 per month in rent. This equates to an income of £15,312 per year, a gross rental yield of 5.3%.
Check out the latest rates on our BTL product guide.
Costs
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, the research then looked at the net yield secured after the cost of maintaining a buy-to-let . The costs incurred included:
- letting agent fees (£1,837)
- general maintenance costs (£2,898)
- annual gas safety certificate (£80)
- electrical safety report certificate (£225)
- landlord insurance (£427)
In total, these additional costs for the average UK landlord amounted to £5,468. 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.
HMOs
Based largely on the major ingredient of high historic yields, one key property type which continues to capture the attention of such landlords is HMOs. This is a factor which was highlighted in the Q2 2023 Landlord Panel research from BVA BDRC – in conjunction with Foundation Home Loans – which outlined that HMOs and MUBs were generating significantly higher average gross rental yields when compared to other property types (6.0%).
Within the most recent research, there was also an increased focus on landlord divestment and it was interesting to note that terraced houses and individual flats were suggested to be the primary target for divestment. In contrast, HMOs, MUBs and bungalows were reported to be more protected, a factor which is likely linked to their more robust rental yields .
See how we calculate the rental cover on all of our specialist property types including HMO’s.
The upcoming research update (November 2023) will determine if there are any shifts in the yield table, with the expectation that the dominance of portfolio landlords in the BTL market will persist, alongside a growing focus on specialised BTL lenders to create innovative solutions and support portfolio landlords' broader requirements.
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