Buy-to-let yields set to fall, warns Savills
04-25-2014
A combination of strong house-price inflation and stagnating rents is likely to put pressure on buy-to-let yields, Neal Hudson has predicted.
Savills’ residential research analyst forecast a compression in yields from 5.6 per cent in 2013 to 5.17 per cent in 2016, driven by estimated house-price growth of 25 per cent over the next five years.
Mr Hudson said while a recovering economy and rising interest rates should curb house price-growth and bolster rents, this was only likely to boost rental yields to 5.4 per cent by 2018, leaving them under their 2013 level for five years.
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He added: “There is the possibility that some of the more highly leveraged investors may struggle in the event of rising mortgage rates.”
Meanwhile separate figures from the Royal Institute of Chartered Surveyors estimated rental yields will fall 0.4 per cent over the next five years, with London seeing the worst compression at 0.62 per cent, followed by a fall of 0.56 per cent in the South East of England.
John Heron, director of buy-to-let specialist lender Paragon Mortgages, said landlords should be aware of a “very fragmented market”, with yields much stronger in regions where there has been lower house-price inflation.
Adviser view
David Sheehan, IFA at Surrey-based Opal Financial Management, said: “This could deter some people but I still think most will keep wanting to put their money into property. Bizarrely, property is still seen as the best investment. However, interest rates will rise at some point.”
|
|
Savills’ performance forecast | |||
|---|---|---|---|---|
|
Gross Yield |
Net Yield |
Capital Growth |
Total Return | |
|
2012 |
5.80% |
4.35% |
|
|
|
2013 |
5.56% |
4.17% |
7.10% |
11.60% |
|
2014f |
5.32% |
3.99% |
6.50% |
10.80% |
|
2015f |
5.19% |
3.90% |
5.00% |
9.10% |
|
2016f |
5.17% |
3.88% |
4.50% |
8.60% |
|
2017f |
5.24% |
3.93% |
4.00% |
8.10% |
| 2018f | 5.37% | 4.03% | 3.00% | 7.10% |
Source: Savills