Rents have fallen for the fourth consecutive month, falling 0.5% in January and are now 2% lower than in September 2009. In contrast house prices are 3.3% higher.
Total returns for landlords in January, which combines rental income and house price growth, were 16.7% on an annual basis. The average landlord made £27,500 on a typical property between January 2009 and January 2010 with almost £20,000 of this in the form of house price inflation.
This fall in rental yields came just after the stamp duty holiday where investors rushed to purchase properties in order to benefit from this. This increase in supply of rental properties has pushed rents lower.
The beginning of the year is usually a quiet month in terms of tenant demand so this increase in rental properties has meant landlords have had to cut rents in order to avoid their properties becoming unoccupied.
This may become a problem if house prices become too expensive and rents remain low, as the lower rental yields landlords receive may not be enough to cover their mortgage repayments.
David Brown, commercial director of LSL Property Services warned landlords to ensure a healthy mix of income and capital appreciation to avoid mistakes of the past.
Total returns look very enticing at present as house price increases contribute a larger share of a landlords profit. Over the long term, investment in buy-to-let must be underpinned by a strong yield.
It is important for landlords to take out the appropriate landlord insurance policy in order to protect themselves and their properties.
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