For as long as the buy-to-let sector has existed, yields have been one of the most important metrics for landlords. However, over the next five years, we believe they will become even more crucial for two reasons.
First, it is likely that price growth from 2020 to 2025 will be lower than it was from 2015 to 2020, meaning a larger proportion of an investor’s income over this period will come from rent rather than capital appreciation. And second, with the tapering out of tax relief on mortgage interest completing in the 2020/2021 tax year, lenders are applying increasingly stringent affordability tests given that a larger proportion of the rent will be taxed. This will make securing finance on loweryielding properties by higher-rate taxpayers much tougher in the years to come.
It is no secret that northern landlords enjoy higher yields than their southern counterparts – nine in ten landlords in the North East achieve yields above 5%, compared with half of landlords in the South East and a third in London. However, there is plenty landlords can do to maximise their yield while still buying locally.