Rental update – strong yields, smart homes, and the power of BTR

The latest research by a nationwide buy-to-let (BTL) specialist has revealed which major cities across England and Wales have seen the strongest rental yields since 2015.

Despite changes to BTL tax relief, an increase in the rate of stamp duty on buy-to-let and second homes, and talk of changes to Capital Gains Tax (CGT), the sector continues to prove lucrative for those investing in the right areas.

Sequre Property Investment’s analysis has found that seven cities, in particular, have stood the test of time in recent years.

Manchester topped the table of strong rental yields, sitting at an average of 5.5% a year.

Sunderland has also performed well at an average of 5.4% per year, with Nottingham (5.3%) and Newcastle (5.2%) also putting in a strong performance.

Leeds completed the top five, witnessing average rental yields of 5.0% between 2015 and 2020.

At the other end of the table, Cambridge has seen the lowest average rental yield since 2015 at just 3.2%, while Bournemouth is the only other city to also slip below the 4% mark at 3.7%.

Daniel Jackson, sales director at Sequre Property Investment, says while the current uncertainty within the rental market can make investing a daunting business, knowing where to invest is critical.

“The key is to know your market and to appreciate that property investment should be undertaken with a long-term view, rather than a smash and grab mentality,” he explains.

“The historic market health of a given location can provide you with good insight in this respect but top-line rental yields can only take you so far.” 

“Utilising the knowledge of those in the sector is the best way to maximise your endeavours, whether it be through a tailored investment to suit your individual circumstances, the ability to access bulk deals that can minimise the initial cost of investing or even access to off-market opportunities that aren’t open to the average buy-to-let investor.”

He concludes: “All of these approaches can see you secure a far higher yield in any location when compared to the general market.”

76% of tenants unlikely to pay more for smart rental home – study

While many industry experts are predicting what the home of the future could look like, research from Ascend Properties has found that residents aren’t swayed by smart homes.

The Build to Rent (BTR) sector is often seen as the future of renting, presenting better homes with all the mod-cons expected from today’s residents including great broadband, on-site amenities and communal outdoor areas.

However, the BTR specialists found that residents are less worried when it comes to smart tech integration, with just a third stating they would be more likely to rent a home purely because it had smart tech.

In addition, the vast majority (74%) also stated they would be unlikely to pay more for a rental property simply because it was smart tech-enabled, with just 2% willing to pay much more than the market rate.

The ability to save money through smart tech features such as utility management and smart meters held the greatest appeal amongst potential tenants. Safety also ranked high, with features such as smart locks and surveillance holding high appeal as well.

A smart entertainment system and the ability to access lighting and heating remotely also appealed, although eco-friendly smart tech and convenience features such as voice activation were less sought-after.

Ged McPartlin, managing director of Ascend Properties, comments: “It’s fair to say that while smart tech is a great addition to the home, residents aren’t quite ready to pay above the odds for the privilege of a fully automated home of the future.”

“In fact, it’s important to get the basics right and provide the fundamentals such as good WiFi, or a well-maintained outdoor space, before you start to add the additional bells and whistles.”

He adds: “But that’s not to say there isn’t a market for some degree of smart tech and with any investment, it’s about choosing the right additions to compliment the property itself, as well as the wider lifestyle offering you are trying to deliver.”

“By doing so, you can appeal to the modern resident without deterring them with a cost of renting that sits far above the expected rate.”

Is BTR the dominant force for London’s new-build sector?

Further research from Ascend Properties shows that Build to Rent developments are beginning to dominate the new-build sector in London.

Build to Rent, alongside the rest of the new-build sector, has endured difficult times during the Covid-19 pandemic, with completions dropping slightly in the face of pandemic restrictions.

Ascend’s research reveals that in Q1 2021, there were 3,256 Build to Rent completions throughout the UK, representing a 10% drop when compared to Q1 2020.

In London, however, the past year has seen an increase in BTR completions. In Q1 2020, there were 1,600 completions, while in Q1 2021, there were 1,809 completions – a rise of 13%. 

And while the pandemic has brought with it severe complications, the capital has demonstrated ‘impressive’ resilience when comparing BTR performance pre-Covid with its performance throughout the pandemic.

In the five quarters leading up to the start of the pandemic, London had 5,767 BTR completions. In the five quarters since the pandemic started, there have been 7,371 BTR completions – an increase of 28%. During the same period, BTR completions across the UK as a whole dropped by 11%, from 16,055 to 14,267.

Comparing the success of London BTR during the pandemic with the success of the wider new-build sector during the same period, the data suggests that BTR is becoming the go-to choice for developers in the capital.

Ascend says while London new-build completions as a whole fell by 10% during the pandemic, the number of BTR completions rose by almost 60%, showing that BTR is ‘an increasingly dominant force in the new-build sector’.

McPartlin comments: “This data shows, without question, that Build to Rent is now the premier choice for London developers.”

“While the pandemic has brought about a marginal decline in Build to Rent completions at a national level, the sector has gone from strength to strength within the capital and now accounts for a far greater proportion of all new build completions.”

“This is hardly surprising as Build to Rent lends itself perfectly to the mixed-use development schemes that are fast becoming a key focus for London developers and local authorities, who are looking to revive demand in urban areas that have suffered since people stopped commuting into work.”