Buy To Let’s Low Yields - is it worth it?

New research from lettings agency Benham and Reeves has shown that while net rental yields have increased over the last year, they sit at just 3.4 per cent after expenses.

The agency analysed the gross rental yield of the average buy to let property before comparing this to the net yield actually secured once annual running costs are accounted for. 

The research shows that currently, investing in the average buy to let property across the UK will set you back £289,824, with the average property currently commanding £1,276 per month in rent. This equates to an income generated to the tune of £15,312 per year, a gross rental yield of 5.3 per cent. 

This gross rental yield has climbed over the last year, up from 4.8 per cent in the last 12 months. 

However, Benham and Reeves then looked at the net yield secured once the cost of maintaining a buy to let is accounted for. The costs incurred include letting agent fees (an average of £1,837 per year), general maintenance costs (£2,898), the cost of an annual gas safety certificate (£80), an electrical safety report certificate (£225) and landlord insurance (£427).

In total, these additional costs come to £5,468 for the average UK landlord, meaning their estimated annual income generated is reduced to just £9,844 for the year.

As a result, the net yield secured on the average buy to let property comes in at just 3.4 per cent, up from 3.0 per cent over the last year. However, these ongoing costs don’t include the average cost of repaying a buy to let mortgage which currently sits at an average £1,201 per year - and possibly much, much more for many landlords.

Additional research by the agency highlights how inflation is impacting buy-to-let profitability when it comes to the cost of furnishing a rental home. 

In the last year alone, the cost of furniture essentials has climbed across the board, with electric cookers seeing the largest increase, climbing by 12.3 per cent in price. 

Curtains have seen an 8.8 per cent cost increase, dishwashers are up 6.7 per cent, an armchair now costs 5.7 per cent more than a year ago, with washing machines and wardrobes also seeing some of the largest price hikes.