The yield of a property is a crucial figure for landlords as it indicates the return on their investment. It can be used to track the performance of the property over time and compare it with other buy-to-let properties and market averages, as well as other forms of financial investment. Yields tend to vary based on the location of the property and the balance between rental income and capital growth.

In more expensive areas like London and the South of England, rental yields are generally lower, but the properties have better capital growth potential. On the other hand, more affordable locations like the Midlands and North of England have higher yields but do not benefit from substantial capital growth. Landlords who rely on monthly rental income find yields more useful, while those focused on long-term capital gains may be less concerned with the yield figure.

During the early stages of the pandemic and until mid-2021, average house prices and rents were rising steadily, resulting in stable gross yields. Landlords were able to maintain their profit levels despite the increasing cost of living. In Q4 of 2020, the average gross yield in England was 5.8%, ranging from 5.1% in Central London to 6.4% in Yorkshire & Humber and the East Midlands. By Q3 of 2022, there had been little change, with England’s average remaining at 5.8%.

Rightmove’s rental price tracker for Q2 of this year showed average yields ranging from 5.3% in London to 8.3% in the North East of England, with all regions, as well as Scotland and Wales, seeing a slight increase compared to the previous year.

What is Yield and Why It’s Important?

• A property’s yield shows the return on your investment.
• It can be used to check how well your property is doing over time and compare it to others.
• In simpler terms, it’s a bit like checking the mileage on your car to see how far you’ve gone.

How Does Location Affect Yield?

• Houses in pricier places, like London, tend to have a smaller return (or yield) but can grow in value more.
• Houses in cheaper places, like the North of England, have a bigger return but don’t always increase in value as much.
• Think of it like this: It’s a bit like choosing between a steady monthly salary (higher yields) or a yearly bonus (capital growth).

What’s Happening to Yields Recently?

• During the pandemic’s early days, house prices and rents both went up. So, the yields (or returns) for landlords didn’t change much.
• For example, by the end of 2020, the average return in England was about 5.8%. Two years later, it’s still the same, even if there were some ups and downs in between.
• Recently, the best places to invest for returns are outside London, especially in the North East.

But There’s a Challenge for Landlords…

• Even if the returns are steady, landlords who have borrowed money (mortgages) to buy properties might be making less money now.
• Why? Because the interest rates for these loans have gone up a lot, especially over the past year. In fact, they’re the highest they’ve been in 15 years!
• Imagine you had a monthly gym membership, but the price suddenly tripled. That’s what’s happening to some landlords with their mortgage payments.
• Some might even be losing money if they can’t charge their tenants more or cut other costs.

Tips for Improving Yields:

1. Raise the Rent: But remember, you can usually only do this once a year. When you get a new tenant, you might be able to charge even more.
2. Re-evaluate Your Mortgage: If your house’s value has gone up, you could get a better loan deal.
3. Buy Low, Add Value: If you buy a house cheaper than its worth or improve it, this can boost your returns.
4. Rent Out Rooms: Instead of renting the whole house, consider renting out individual rooms.
5. Pay Off Some of Your Loan: If you pay a big chunk of your loan, you might get better terms on it.

Final Thought:
When investing in property, it’s essential to plan and keep an eye on all your costs and income. It is essential for landlords to plan ahead and stress-test their figures when making a buy-to-let investment or facing significant changes like mortgage rate increases. Understanding the break-even point, tracking income and expenditure, and anticipating financial pressures are crucial steps to reduce risks