The yield of the average UK property could rise by as much as 25% over the next five years.
Summary:
- A combination of high yields and capital growth can result in UK property generating total annual returns of around 14%
- Over the next five years, investors have been told that rents could rise at a faster pace than house price growth
- Currently, yields in some regions of the UK are as high as 8%
Investors need to place more emphasis on the amount a property yields rather than its potential for capital growth.
New research from Royal Institution of Chartered Surveyors (Rics) predicts that over the next five years, rental rates will outpace house price growth.
Although around five million households are now living in the private rented sector, the supply of high-quality rental accommodation is very limited. As even more people opt to live in rented homes, Rics predicts tenancies could become 25% more expensive over the course of the next five years.
Simon Rubinsohn, Rics Chief Economist, said: “Critically our principal concern with the measures announced by the government is that they are overly focused on promoting home ownership, at the expense of other tenures.
“Discouraging buy-to-let could see private rents take even more of the strain.”
Yields in the UK have already reached record highs this year. Recent figures from HSBC show that investors can achieve gross yields of around 8% in cities such as Manchester where there is a growing workforce and high demand for accommodation. As long as investors attract a tenant, the potential ROI associated with property is much higher than any other asset.
Rics found that average house prices in the UK will rise by 6% over the course of 2016. As with yields, there is plenty of regional variation for investors to navigate and London is no longer the top-performing market. Four regions in the UK, including East Anglia and the north-west, will record higher capital growth than London next year.