Smaller Properties Provide Better Rental Yields.

by Mark Johnston

Smaller Properties Provide Better Rental Yields.

Many reports have revealed that more people now rent than have done over the previous years, this is largely due to a shortage of supply and people unable to get there feet on to the property ladder.

New analysis shows that the cost of renting has rocketed 4 times faster than wages over the past year to a new all time high, in London renting costs have rocketed 8 times faster.

The HomeLet rental index shows that the average cost of renting property in the UK’s private rented sector increased by 3.3 per cent during the first quarter of 2013.

In contrast, the average amount working tenants earn in a year has only increased by a minimal 0.8 per cent over the same period.

According to recent data published by UK lettings agent Countrywide, properties with just one or two bedrooms now provide the highest rental returns for buy to let landlords.

Figures have revealed then that two bedroom properties provide a 6.4 per cent yield while three bedroom properties give a 6.3 per cent yield.

As many young professional couples have been priced out of the property market many have therefore looked for one bedroom flats to rent. So it appears that with the number of renters continuing to rise, flats to let out are now becoming one of property’s few growth areas.

Therefore rental yields on one bedroom properties have increased the most. For example a one bedroom flat in Nottingham now provides a rental yield of a whopping 6.9 per cent.

Some experts believe that this is a long term trend which is caused by a simple supply and demand situation.

Nick Dunning, commercial director at Countrywide, says this trend may be due tot he fact that “with lots of people working away from home, they need to rent smaller properties where the work is”.
Many estate agents have also commented that at the moment there is high demand for smaller properties and they have reported that there can be up to six or seven tenants for each smaller property on the rental market.
So despite larger properties achieving greater rents, it seems that it is smaller properties that have seen rents rise the most.
Figures have shown that one and two bedroom properties have seen a 3.3 per cent year on year increase in rents compared to three bedroom properties who saw a rise of just 2.3 per cent and a rise of 0.3 per cent was seen on four bedroom properties.
Henry Knight, managing director at Springtide Capital, an independent mortgage broking firm, added “investors are more likely to realise a greater return on a smaller property in terms of an overall investment”.
So in conclusion with rents continually rising, arrears falling and some significantly improved buy to let mortgage products now coming on to the market, all these new findings are very encouraging, especially for investors who are looking to start or expand their property portfolio this coming year.

All in all it seems then that the ‘stars are aligning once again for the buy to let investor’, especially those who have smaller properties.

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