Rental yield figures released by a buy-to-let broker Landlord Mortgages this week show that rental yields in Q3 2006 have continued to fall across England (5.69% to 5.54%) and the Greater London area (5.70% to 5.53%).   However, the average decline in yields has shown signs of slowing heralding a stabilising market. 

Landlord Mortgages believes that the current trend towards falling yields is due to increasing house prices and providers changing their lending requirements.  Over the last few months, an increasing number of lenders have reduced their minimum rental coverage from 125% of mortgage repayments to 115%.  While this move has hit rental yields, it has been a boost for property investors as they are now able to diversify their portfolios by purchasing properties which previously had been poor investments as the ‘figures did not stack’.

Scotland – yields still falling!

Scotland, although still outperforming England and London, has shown a sharp decline in rental yields over the quarter.  This can be attributed to average house prices in this region increasing; a factor that is gradually driving down the traditionally higher rental yields obtainable north of the border.

Overall, yields available across Scotland, England and London are moving closer together suggesting that these three market places are becoming increasingly linked.  This is likely to lead to a situation in the future whereby above average rental yields will be found in smaller specific areas (i.e. Bath and South East Avon) rather than huge regions (i.e. Scotland or the South West).

16th October 2006