Landlord returns reach almost 7% in some areas
Landlord returns reach almost 7% in strongest rental markets, but protecting those returns is just as important as generating them
The latest analysis by The Letting Partnership has revealed that rental yields are reaching almost 7% in England’s strongest-performing markets, but the firm has warned landlords that generating a healthy return is only half the equation, with the protection and management of rental income just as important.
The Letting Partnership analysed the latest average house price and private rental data across England to estimate current nominal rental yields, before looking at how returns vary at local authority level.
Across England, the average estimated nominal rental yield currently stands at 5.9%, based on an average house price of £293,262 and average monthly rent of £1,446.
Where landlords are seeing the strongest returns
Newcastle upon Tyne currently offers the highest estimated nominal rental yield at 6.9%, with an average property price of £208,589 and average monthly rent of £1,206.
Portsmouth and Manchester follow, both offering an estimated yield of 6.5%, while Southampton and the London borough of Tower Hamlets offer estimated yields of 6.4%.
Bristol, Blackpool and Nottingham also rank amongst England’s strongest rental markets, with estimated nominal yields of 6.3%, followed by Lincoln and Kingston upon Hull at 6.2%.
The figures demonstrate that landlords can still achieve healthy headline returns across a broad range of markets, particularly in areas where comparatively affordable property prices combine with strong monthly rental values.
Protecting the income behind the yield
However, The Letting Partnership warns that landlords should consider more than the headline yield their property can generate.
For landlords using a managing agent, rental income will routinely pass through an agent’s client account before being reconciled and remitted. This means the strength of an agent’s client accounting processes and financial controls can be just as important to protecting a landlord’s return as achieving a competitive rent in the first place.
The sums involved can be considerable. While Newcastle tops the table for yield with average monthly rents of £1,206, rental values in some lower-yielding London markets are substantially higher.
In Westminster, for example, the average monthly rent stands at £3,168 despite an estimated nominal yield of 4.5%, while Kensington and Chelsea commands the highest average monthly rent in the analysis at £3,596, equating to a yield of 3.5%.
This equates to more than £38,000 and £43,000 respectively in gross rental income over the course of a year, demonstrating the substantial sums that can be generated by an individual rental property and, where managed by an agent, potentially pass through client accounting systems.
The Letting Partnership believes landlords should therefore look beyond an agent’s ability to secure a strong rental value and consider the processes and safeguards in place to ensure that rental income is correctly received, reconciled and remitted.
Chris Mason, COO of The Letting Partnership, commented:
“Yield is understandably front of mind for landlords and, as the figures show, there are still parts of the country where investors can achieve very healthy returns.
However, generating that return is only half the equation. For landlords using a managing agent, thousands or even tens of thousands of pounds in rental income can pass through that business every year, and landlords need confidence that the same attention being paid to maximising their return is also being paid to protecting it.
Good client accounting isn’t necessarily something a landlord sees on a day-to-day basis, but it is fundamental to a well-run letting agency. Accurate reconciliations, robust financial controls and clear processes around the receipt and remittance of client money all sit behind the rent arriving where it should, when it should.
Landlords should absolutely be asking what an agent can achieve for their investment, but they should also be asking what systems and safeguards are in place once that money starts coming in.
For good agents, being able to demonstrate those standards clearly is also an opportunity to differentiate themselves and give landlords greater confidence in who they are trusting with their rental income.”
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