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Horncastle Buy-to-Let Return / Yields - up to 7.6% a year

Article Simon Jory 2017-10-12
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Horncastle Buy-to-Let Return / Yields - up to 7.6% a year

The mind-set and tactics you employ to buy your first buy to let property needs to be different to the tactics and methodology of buying a home for yourself to live in. The main difference is when purchasing your own property, you may well pay a little more to get the home you and your family want, and are less likely to compromise. When buying for your own occupation, it is only human nature you will want the best, so that quite often it is at the top end of your budget.

Yet with a buy to let property, if your goal is a higher rental return - a higher price doesn't always equate to higher monthly returns - in fact quite the opposite. Inexpensive properties can bring in bigger monthly returns. Most landlords use the phrase - instead of monthly return. To calculate the yield on a buy to let property one basically takes the monthly rent, multiplies it by 12 to get the annual rent and then divides it by the value of the property.

This means, if one increases the value of the property using this calculation, the subsequent yield drops. Or to put it another way, if a buy to let landlord has the decision of two properties that create the same amount of monthly rent, the landlord can increase their rental yield by selecting the lower priced property.

To give you an idea of the sort of returns in Horncastle...

Horncastle Property type Average Price paid (last 12 months) in Horncastle Average Rent Achieved in last 12 months in Horncastle Lower End of Yield Range in Horncastle Average Yield in Horncastle Upper End of Yield range in Horncastle
Detached £239,940 £915 3.20% 4.58% 5.42%
Semi-Detached £155,684 £567 3.51% 4.37% 6.19%
Terraced £115,116 £455 3.50% 4.74% 7.65%
Number of house sales in England and Wales

Now of course these are averages and there will always be properties outside the lower and upper ranges in yields: they are a fair representation of the gross yields you can expect in the Horncastle area.

As we move forward, with the total amount of buy to let mortgages amounting to £199,310,614,000 in the country, landlords need to be aware of the investment performance of their property, especially in the era of tax increases and tax relief reductions. Landlords are looking to maximise their yield - and are doing so by buying cheaper properties.

However, before everyone in Horncastle starts selling their upmarket properties and buying cheaper ones, yield isn't the only factor when deciding on what Horncastle buy to let property to buy. Void periods (i.e. the time when there isn't a tenant in the property between tenancies) are an important factor and those properties at the cheaper end of the rental spectrum can suffer higher void periods too. Apartments can also have service charges and ground rents that aren't accounted for in these gross yields. Landlords can also make money if the value of the property goes up and for those Horncastle landlords who are looking for capital growth, an altered investment strategy may be required.

In the Horncastle area, for example, over the last 20 years, this is how the average price paid for the different types of property have changed...

  • Detached Properties have increased in value by 258.2%
  • Horncastle Semi-Detached Properties have increased in value by 257.9%
  • Horncastle Terraced Properties have increased in value by 266.8%

It is very much a balancing act of yield, capital growth and void periods when buying and every landlord's investment strategy is unique to them.

Sources:

  1. Stats on average price paid – Land Registry
  2. Stats on Rent Paid - Rightmove
  3. Stats on Value increase - Land Registry
  4. Yields are Gross
  5. Stats on total BTL mortgages Bank of England

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MEET THE TEAM

Simon Jory

Simon Jory

Simon has been in Estate Agency for over 32 years and is a Fellow of the National Association of Estate Agents. Having working in all kinds of changing market conditions he is well placed to advise on how best to sell your home.

Anne Pearce

Anne Pearce

Anne prides herself on working to the highest standards and believes everyone should receive the best possible customer service. With over 20 years' experience she will not miss and opportunity.

Dawn Bannister-Law

Dawn Bannister-Law

Prior to moving to Lincolnshire, Dawn was a valuer for more than 19 years in Bakewell in the Peak District. Dawn strongly believes buyers, sellers, landlords or tenants are all as important as each other

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