Stamp Duty To Be Blamed For Falling Residential Yields


The combination of rising house prices and falling rents caused the residential yields to fall to their lowest level for 18 months in January.

Residential yields fell to 4.75% last month which marked the lowest level since August 2008, according to the latest Buy-to-Let Index from LSL Property Services.

Yields had peaked at 5.1% in March 2009 as house prices reached their lowest levels. Moreover, LSL stated that this period of “intense activity” in the housing market was driven primarily by investors rushing to benefit from the stamp duty holiday, which ended in this last December.

As a result house prices risen 3.3% higher but caused rents to fall as an additional supply of rental housing came on the market. Rental values fell 0.5% in January and are currently 2% lower than in September 2009 following the fourth month of consecutive declines.

The total returns in January of combining rental income and house price growth, were 16.7% on an annualised basis. Subsequently this means a landlord would make a total return of £27,500 on a typical property this year, with almost £20,000 in the form of house price inflation.

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David Brown, of LSL Property Services, said that landlords had to move fast to add to their portfolios before the stamp duty holiday ended in December. As a result there was a higher rental supply at a time of year when tenant demand is traditionally quieter. Landlords have had to cut rents in order to avoid even costlier void periods. This was regarded as a smart move since landlords were able to save an average of £1,600 tax on each property bought that would otherwise take years of gradual rent increases.