Across vast swathes of the Midlands and the North, terraced houses have long been the mainstay of the buy to let market. They have allowed landlords to invest relatively affordably and offered yields well above other property types. Further south, and in more expensive southern markets, it’s typically flats which offer the highest returns to landlords.
Prior to Q3 2020, flats had delivered the highest yields in just three regions of England and Wales: London, the South East and South West, typically places where prices are highest and yields are lowest. In the other seven regions, terraced houses have always provided yields in excess of other property types, typically by a margin of at least 1%.
However, this has all shifted in the space of a few months. Since the market re-opened in May, investors purchasing flats have been achieving record yields. The average gross yield on a flat rose to 5.6% in Q3 2020, up from 5.0% during the same period last year. In many cases, these yields have exceeded those offered by terraced houses across much of the country. This means flats offer yields which are now higher than any other property type in seven of the ten regions of England and Wales.
The majority of this recent yield growth has been driven by falling prices, while rents have remained more stable. Only in the North East and North West do terraces still offer higher returns than flats. Whether this shift is permanent will depend on buyer’s attitudes returning to pre-pandemic norms.
While some buyers have re-evaluated their priorities over lockdown and decided to look for more space, investors have had no such thoughts. Higher returns have been shaping investor purchasing decisions. Nationally flats now comprise half of homes bought by landlords, the highest proportion on record.