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BTL and gross yields

It used to be said that people buying houses to let needed a gross rental return of 8% in order for buy to let to be a good investment. With recent house price inflation, people are prepared to buy houses giving a much smaller yield as they expect the value of the house to increase.

Do people here think that new buy to let investors will once again expect higher rental yields close to 8% in the near future?
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Comments

  • Sapphire
    Sapphire Posts: 4,269 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Debt-free and Proud!
    RHemmings wrote:
    It used to be said that people buying houses to let needed a gross rental return of 8% in order for buy to let to be a good investment. With recent house price inflation, people are prepared to buy houses giving a much smaller yield as they expect the value of the house to increase.

    Do people here think that new buy to let investors will once again expect higher rental yields close to 8% in the near future?

    Yes, I do think current amateur BTLs expect it (but they won't get it). They've been influenced by the property !!!!!! on TV and the spin in the media. :rolleyes:
  • Tassotti
    Tassotti Posts: 1,492 Forumite
    Depends on the area of the country.

    Down south, virtually impossible to get 8% yield, unless HMO'ing.

    I believe that some areas up north still provide good yields.
  • Most are now looking at 4.5% up to 6% in my area here in SE & E London.

    Kind of makes you wonder why they bother. So most are no longer looking at the rental returns but long term building the equity for a profitable sale in the future.
  • RHemmings
    RHemmings Posts: 4,894 Forumite
    Part of the Furniture 1,000 Posts Photogenic Name Dropper
    Most are now looking at 4.5% up to 6% in my area here in SE & E London.

    Kind of makes you wonder why they bother. So most are no longer looking at the rental returns but long term building the equity for a profitable sale in the future.

    Yes, but my question was different. If future BTL buyers expect an 8% yield for property, then the amount that they will be prepared to pay for property will fall. And either BTL will disappear completely, or house prices will fall to allow yields to grow.
  • I posted this on another thread but bits of it may be useful to you.

    Well if it helps I can give you a bit of history and figures on letting from my own experience. In the early 90s the return was in the region of 9%. Based on a two bed flat which cost £60k and brought in £450 per month. 450 x12 =5400.

    Now that same flat returns 5.7% because the rent is £650 per month and it is valued at
    £135k. 650 x 12 = 7800.

    Now if you do the figures at an interest rate of say 7% to borrow 60k over 25 years would cost you £424 per month. To borrow 135k at the same rate would cost £954 per month.
    In the latter example the rent does not cover your expenses in fact you have a shortfall of about £300 or 50%

    BUT interest rates have not been stable over that period in October 1990 the rate was 14% whereas in August 2006 it was 4.75%. Someone that is far more expert than me will be able to tell you what all this means in terms of your own circumstances. I just know that I could not afford to get into Buy to let now.
  • RHemmings
    RHemmings Posts: 4,894 Forumite
    Part of the Furniture 1,000 Posts Photogenic Name Dropper
    BUT interest rates have not been stable over that period in October 1990 the rate was 14% whereas in August 2006 it was 4.75%. Someone that is far more expert than me will be able to tell you what all this means in terms of your own circumstances. I just know that I could not afford to get into Buy to let now.

    I'm not planning to buy any properties for BTL. But it's often said that a large part of what keeps house prices high is the number of people buying properties for BTL. We see many articles saying that the sums don't add up for BTL any more. The prices of houses are set by what people are prepared to pay for them. If BTL buyers are no longer prepared to rely on price appreciation for their return, then that will change the amount of money that they would be prepared to pay for property. And even without unemployment, further interest rate rises, rises in unemployment, or other frequently quoted reasons for a crash, changing sentiment and gross yield targets for new BTL purchasers might itself be enough to trigger a crash in prices.

    In somewhere like Wembley in London, £1000 pounds a month might be a reasonable rent for a family home. If that is to be an 8% gross return, then it would value the house at £150,000 pounds. How many family homes in Wembley can you buy for £150,000 pounds?
  • CB1979_2
    CB1979_2 Posts: 1,335 Forumite
    well my 2 bed flat that i've just bought is £167k (of which £165k is mortgage)

    total monthly mortgage payments (on the "dreaded" Interest Only mortgage) is £550ish, rental income £800 a month.

    minus £50 a month for insurance/miscellaneous expenses.

    btw looks like I'm going privately letting rather than through an agent as they all want near on £100 a month for not doing much bar findind the tenant.

    so obviously if i had to pay that as well, would knock down "profit" even more.

    ps this is due to circumstances that I'm letting out for 3-6 months not as a BTL property.

    but to answer your original q,

    personally think landlords are "happy" with 4% yields, as there assets are still going up in value, just as long as they have a "sound" property, ie elecs/plumbing are 100%, I for one would definately not do it, if i thought that i would be having to spend out cash each month to fix/repair problems.
  • Sapphire
    Sapphire Posts: 4,269 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Debt-free and Proud!
    CB1979 wrote:
    personally think landlords are "happy" with 4% yields, as there assets are still going up in value.

    Are they really, in all parts of the country? And will they continue to do so forever and ever?

    Haven't these amateur landlords heard of boom and bust cycles? Or do they believe it will be different this time? :D
  • Do newbie btl's/ average Joe public even understand yields?
    When it comes to thought, some people stop at nothing.........
  • I think the BTL bubble has burst now that rents do not cover the costs of borrowing but people such as myself who bought properties several years ago are faring well. In the example I gave previously because I still own that property and it brings in £650 per month and I paid £60k for it the return is 13%.
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