Expats Eye Return To UK Rental Market
Thursday, April 21, 2011

With rental yields having risen steadily over the past few months, opportunities for expatriate landlords to re-enter the UK buy-to-let investment market appear to be on the increase, according to Expatpropertyfinder.com.

While bank deposit customers can expect to receive less than 4% on a 2-year fixed rate bond, rental yields in some parts of the UK are now touching 8% says Erica Evans of Expatpropertyfinder.com, citing data released this week by FT Money. Towns and cities with significant student populations are performing particularly well.

“There is no doubt that the rental market is healthier today in many areas and this is attractive to expatriates looking for a better return than can be achieved with cash deposits," Evans said. "Property prices have fallen in many areas, but in the student towns outside of London where there is a bedrock of demand, this will have the effect of pushing rental yields up, assuming landlords are able to hold rentals."

Property in parts of Southampton, Leeds and Cardiff, for example, is achieving yields of 8.12%, 7.52% and 7.12%, respectively. East London has also performed well, with yields of between 6.70% and 6.90% possible. The data is further supported by the latest UK Home Asking Price Index from consumer property website, Home.co.uk, which lists several areas of the UK where rental yields are over 7%.

However, Evans cautions against drawing too broad a conclusion from the data, noting that property values are still falling in some areas of the country.

"Prices in Sheffield have dropped by nearly 2.5%, whilst those in Manchester have fallen by nearly 4%, according to data issued by the Land Registry, for example. In our view, though, this simply underlines the importance of buying in the right area, as high yields are unlikely to fully compensate if capital values are falling," she observed.

Average UK house prices are currently weakening according to Land Registry data, which shows an average 1.7% fall over the year to February 28, 2011. But within that data, there are "undoubted areas of strength" in the market says Expatpropertyfinder. For instance, average prices in the south coast town of Bournemouth have risen by 3.8% over the past year, whilst those in Greater London have risen by 3.2%.

The key for the buy to let investor is therefore to find properties offering a combination of stable yields and rising capital values, and according to Evans this combination is readily available in London and also in certain rural areas.

“We are seeing strong interest in Westminster, yields can be as high as 5% and these are backed by capital values which have been rising well over the past two years, giving investors a powerful overall proposition. At the same time, properties in highly prestigious parts of the country such as Rutland have shown a 4.2% increase over the year," she said.