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  • Writer's pictureThe Cedar Crest Team

Landlords achieved higher rental yields in 2021

Updated: Jan 18, 2022


Are you looking to increase your buy-to-let investment rental yield?


One of the most popular investment methods is to purchase a buy-to-let where you reap returns through rental yields over time, in addition to capital appreciation.


Recent research has highlighted the average rental yield achieved in the first three months of 2021 was 6%, the highest level in three years[1].

This is an increase from 5.3% the previous year.


Focusing on rental yields and investing for the long term is typically a better investment strategy than only focusing on capital gains. Lenders now require landlords to meet increasingly stringent stress tests when getting buyto-let mortgages.


The current landscape has put pressure on investors to optimise their portfolios and find higher-yielding properties.


So, how are landlords achieving higher rental yields in 2021?


We’ll look at some of the factors.


 

UNDERSTANDING RENTAL YIELD


If you’re an experienced landlord you should be familiar with the term ‘rental yield’ and why it’s important. If you’re a little newer to the market or looking for a refresh, simply think of your rental yield as the annual financial return you can expect to achieve on a rental property.


A simple way to calculate rental yield is X–Y/Z:


X is the total rental income you receive each year from the property


Y is the total costs you incur each year from the property, including mortgage interest, letting fees, etc


Z is the price you paid for the property


So, if your annual rental income (X) is £15,000, your annual costs (Y) are £5,000, and the property value (Z) is £200,000, then the rental yield (X-Y/Z) is 5%.


Therefore, anything you can do to increase your rental income or cut your costs will improve your rental yield.

 

CHOOSING THE RIGHT LOCATION


Location is a crucial factor in rental yield. It’s important for landlords to choose investable locations, ideally with strong rental demand and house price growth projections.


On one hand, you need to buy a property in an area where property prices are low, to minimise your initial investment.


On the other hand, you must choose an area where rental demand is high, or you’ll miss out on potential returns.


Areas fitting both of these criteria are primarily found in the north of England, and particularly in the North East region, where the gap between property prices and average rents is most significant.

 


FINDING A LOW MORTGAGE RATE


One way you can reduce your monthly outgoings is to obtain a better mortgage rate.


Reviewing your outgoings can make a big difference to what you have coming in, so try and shop around each time your mortgage or insurance products are coming up for renewal.


Some landlords may be looking to remortgage now, if they can, because mortgage rates are uncommonly low.

You might find it fairly easy to find a lower rate than you currently pay.


You can also make savings by improving the energy efficiency of your property, as some mortgage providers offer lower rates for green homes. Improving the energy efficiency of your property could also help to retain its value over the long term.

 

MAKING HOME IMPROVEMENTS


If you want to charge higher rent for your property, you’ll likely have to make some improvements. Home improvements cost money, so it’s important to choose the improvements that will provide the best return on your outlay.


With the trend of more people working from home now than in previous years, improvements that relate to that lifestyle are also worth considering. For example, a high-speed internet connection can be valuable, as can home office space.

 

REDUCING TENANT TURNOVER


Another simple way to both increase your rental income and reduce your costs is to retain your current tenant, thereby avoiding gaps in the rent you receive and the costs associated with recruiting tenants.


Taking some careful steps with your choice of tenant can help reduce the one-off costs which are often associated with changing tenants.


While it’s not totally within your control if your tenants decide to leave, you can help by maintaining a good relationship with them and being responsive to any issues that come up during the tenancy

 

>> WANT TO APPLY FOR A BUY-TO-LET MORTGAGE? <<


If you are looking to buy a property to rent out or add another investment to your property portfolio, there are lots of things to consider.


To discuss your options, contact Cedar Crest Ltd - telephone UK T:44 (0) 203 883 1017,

HK T: +852 6645 4463 - email info@cedar-crest.co.uk


Your home may be repossessed if you do not keep up repayments on your mortgage.

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