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Average rents rise in a still profitable BTL sector

Saturday 28 May 2016

New figures show BTL remains a profitable investment as rents rose 0.3% during April to an average of £793 in England and Wales.

The data from the April buy-to-let Index, set up by Your Move and Reeds Rains, shows rents in the East Midlands have grown by 8.5% over the last year alone.

As an investment, BTL continues to outperform all other asset classes, thanks to the growth in rents and rising house prices.

Experts at LSL Property Services have calculated the average annual return on a BTL investment now stands at 10.7% - based on a figure of 19,538, which includes £10,815 of capital growth and £8,723 of rental income.

As a result of rocketing property prices, the average rental yield on BTL properties in England and Wales has fallen from 5.1% in April last year to 4.9% in April 2016.

Other evidence suggests bright prospects: employment is high, wages are showing signs of improvement – and consequently rental arrears fell to 8.1% of due rents – a substantial reduction from a peak of 14.6% in February 2010.

Despite what LSL’s Adrian Gill describes as ‘an onslaught of hostile rhetoric and regulatory hoops’ from Chancellor George Osborne, experts believe there is every chance gross yields could rise to compensate landlords for recently-introduced extra costs like the stamp duty surcharge increase.

But he warns that landlords should take financial advice on how new tax changes will affect them and what they must do to comply with the regulations.

Echoing many industry experts, he says that moves like the stamp duty surcharge will only act as a barrier to new landlords from entering the market.

In the long run, this will prevent new properties coming on to the market –which may have the unintended consequence of reducing competition for existing landlords.

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