The UK is now the fifth worst country in Europe for buy-to-let investment, with average rental yields of just 4%.
The findings, part of the latest European Buy-To-Let League Table from international payments firm WorldFirst, show that the UK has dropped ten places to 25th as a result of a stuttering rental market and significant changes to stamp duty.
By contrast, Ireland is once again the best European destination for buy-to-let investment, with average rental yields rising from 6.54% in 2016 to 7.08% this year.
The analysis comes more than a year after stamp duty changes in the UK were introduced, which has significantly increased the fees for those buying a second home or investing in buy-to-let. While the changes, which saw an additional 3% stamp duty surcharge levied on buy-to-let and second homes, haven't proved catastrophic for the UK's buy-to-let market – as some feared – it was designed to make buy-to-let investment a much less attractive option. Some would argue that WorldFirst's findings point to success on that front.
Yields in the UK fell from 4.91% to 4% in the last year, with British investors not helped by the dramatic fall in the pound which has led to a substantial rise in the cost of acquiring buy-to-let homes. For British investors, a one-bed apartment in an Irish city now costs £12,000 more than it did a year ago, while an equivalent property in Luxembourg is now over £25,000 more expensive.
Ireland's booming economy – one of the fastest-growing in the Eurozone – is being matched by its rental market, with Ireland retaining its spot as the best buy-to-let location in Europe for the second year. It is now the second most expensive country in the EU to rent in after Luxembourg, where tenants pay out £14,000 a year on rental costs.
The other European hotspots to make the top 5 were Malta, Portugal, Netherlands and Slovakia, all with yields of over 6%. While all four countries boast relatively low property prices, strong average rental values provide an excellent opportunity for canny investors to generate a healthy income.
Joining the UK at the bottom of the table, on the other hand, were Sweden, Croatia, France and Austria, which all provided rental returns of less than 4%. High property prices and stagnant rents were the main factors behind this. Sweden finished in last place for the third time in a row, a direct consequence of the country's tightly controlled rental market.
“The correlation between a country’s housing sector and the health of the wider economy is clear,” Edward Hard, economist at WorldFirst, said. “It may now be the case that the deteriorating dynamics of the UK’s rental market is sounding the alarm for a wider slowdown in residential housing and thereby broader economic wellbeing.”
He added: “While the UK remains in a purgatory-like state between EU membership and Brexit, long-term investment decisions have become increasingly difficult to make and falling returns for property investors could mark the beginning of the end for one of the UK’s most successful investment avenues of the past 25 years.”