Historical buy-to-let yields

    Historical buy-to-let yields


    At LiveYield we are interested in explaining the residential property market from an investment analyst’s perspective. Indexing yield on an historical basis allows investors to benchmark their income returns and compare performance versus other asset classes.

    The current average gross rental yield on a residential property in England & Wales is 4.5% and by using data from the Land Registry on average house prices together with the historical movement in rents we can reverse engineer the index below.

    UK Buy to let Yield Time Series

    Using the rental growth index from both the ONS and the rental component of the CPI we can chart yield historically. We see yields fall steadily since 1996 as house prices increase at a faster rate than rents. This continues until 2004 when rents and values move together then yields on buy-to-let investments rise as rents remain stable but house prices fall at the financial recession begins.

    Comparing market pricing today to the peak of the market in 2007 we can see that yields are 0.6% higher, however, just looking at the yield gives us an understanding of the investment landscape and a starting point for investment return but to understand whether the indicate whether house prices are over or under priced depends on a number of factors not least comparing return to savings rates and mortgage rates.

    Experimental Index of Private Housing Rental Prices
    House Price Index
    CPI Component of Return

    Please note that income return is only only one component of return. Property investment return depends on a number of factors in addition including operating costs, void rates, capital and rental growth. The majority of investors purchase utilise debt to magnify their performance and as such the loan to value (LTV) and interest rate associated with that mortgage are critically important.

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