There’s a growing divide within the private rented sector, with fewer
locations still delivering
the returns landlords need
as tax pressures intensify, research reveals.
Dwelly examined Government house price data alongside the most recent ONS
rental figures to pinpoint where average yields are currently strongest.
They’ve also been tracking which areas have improved most since last
Christmas.
The findings come after the Autumn Budget saw tax rates on property income,
savings and dividends rising by 2 percentage points.
Another tax rise for landlords
The firm’s head of M&A, Sam Humphreys, said: “With the Budget confirming
yet another tax increase for landlords, identifying markets that offer
strong or improving yields is essential, as even small percentage changes to
property income tax and dividends can significantly impact overall portfolio
performance.
“Our analysis shows that despite rising pressures, there are still many
parts of the country delivering exceptional returns, and others where yields
have strengthened markedly over the past year.”
He added: “For landlords facing a higher tax environment, these areas offer
valuable opportunities to help maintain margins as operating costs continue
to rise.”
Smaller landlords will be strained
For landlords operating outside company structures, the higher levy on
rental income is set to cut net returns further.
That’s at a time when compliance costs and regulatory rules are increasing.
For incorporated landlords, the rises in savings and dividend taxation are
expected to weigh on overall portfolio performance.
Dwelly, a letting agency acquisition
platform
, is now warning that smaller landlords are likely to feel the financial
strain most acutely.
And that is also raising the prospect of further landlord exits from the
sector unless income can be protected by investing in areas delivering
higher returns.
Rental yield steadies at 6%
Dwelly says that across Great Britain, the average rental yield has held
steady at 6% over the past year, as rent growth has matched gradual house
price increases.
Beneath that headline figure, however, performance varies sharply by
location.
The highest yielding areas remain concentrated in Scotland, Wales and parts
of the North.
West Dunbartonshire tops the table at 9.1%, followed by Greater Glasgow on
7.8% and Renfrewshire and Inverclyde at 7.0%.
Merthyr Tydfil and Newcastle upon Tyne both deliver average returns of 6.6%,
with Portsmouth close behind on 6.5%.
North Lanarkshire records 6.4%, while Dundee and Angus and Southampton each
post 6.3%.
Manchester completes the top group with a yield of 6.2%.
Rising landlord yields
The research also highlights where yields have strengthened most over the
past 12 months with Merthyr Tydfil seeing the biggest rise at 0.94%.
Westminster follows with a 0.54% improvement, ahead of Rhondda Cynon Taf at
0.51%, Tower Hamlets at 0.49% and West Dunbartonshire at 0.47%.
Further notable gains were recorded in Barking and Dagenham at 0.45%,
Lambeth at 0.44% and Rutland at 0.43%.
The table for rising landlord yields also sees Redcar and Cleveland at 0.43%
and King’s Lynn and West Norfolk at 0.42%.
Student landlords need yield
The managing director of Accommodation for Landlords, Simon Thompson, said:
“For student landlords, the message is becoming harder to ignore.
“Returns are no longer just about demand, but about geography, tax exposure
and how resilient a local market is when costs rise.”
He added: “Higher taxes mean a good location is no longer enough. The yield
must work from day one.
“Cities with strong universities and constrained supply are still
outperforming, which is why northern cities and parts of Scotland continue
to stand out.”
