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Residential Auction Annual Review 2016
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Yield Analysis

Assured Shorthold Tenancy Yields

Significantly, the average yield from assured shorthold tenancy investments has increased outside London. However, gross yields in the capital have contracted to just over 5%. We attribute this primarily to the increased demand for London stock.

However, a softening of rental values in London may also be playing a part. Although rental values in the capital are up 2.5% against last year, this is a reduction from the rate of increase seen in October 2015 (7.1%).* Most surveyors continue to report a decline in tenant demand.** During 2016, London went from the region with the second fastest rate of rental growth in Britain to the slowest due to a surge in the number of homes available to rent. Elsewhere in the country however the cost of a new let rose by 3.1%, with the North East, North West and Yorkshire and the Humber regions rising faster than any other.***

*Homelet Rental Index  **RICS Residential Market Survey  ***Countrywide Lettings Index

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Ground Rent Investments

Average ground rent yields per sale have fluctuated within a band of 2% and 6% in 2016 for investments with over 80 years life of income. This is a highly specialised market – but one in which investors have become more knowledgeable and prolific. Two important characteristics of this market are worthy of note.

•  Following market research undertaken of Allsop clients and buyers in 2016, it is clear that price is affected significantly by the presence of a nominated purchaser under the Landlord and Tenant Act 1987 (as amended by the Housing Act 1996). We studied 225 transactions of which 33% were sold subject to tenants’ nominations. In those cases, the average price achieved was 12.65 YP (7.9%) down 46% from the 23.44 YP (4.27%) for unaffected sales

•  The perception of a reversionary ground rent has shifted. Despite the fact that the Landlord and Tenant Act 1967 will not recognise marriage (reversionary) value, when calculating the statutory price of a lease extension until a lease has less than 80 years to run, our research shows that investors will usually attribute reversionary status to ground rents having less than 100 years unexpired

Regulated Tenancies

Returns largely stayed within a well defined yield band of 4% to 6% in 2015. Last year they were more varied showing lows of 2% and highs of 8%. We attribute this to stronger or weaker reversionary potential presented in different cases.

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