Residential Property Auction December 2017
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Residential Auction Annual Review 2017
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Yield Analysis

Assured Shorthold Tenancy Yields

Our analysis shows that the average yield for assured shorthold tenancy investments sold by Allsop under the hammer in 2017 has fallen by 31 basis points from 9.26% to 8.95%.

London, however, when separated, has seen a rise from 5.34% on average to 6.04%. Whilst consistent with the general ongoing correction in London house prices, it may also be attributable to early rising rents in the capital. Landlords have been facing a 3% stamp duty surcharge on Buy to Let (BTL)  investments since April 2016. And in January 2017, the Bank of England introduced stress testing for portfolios, requiring greater coverage of mortgage payments from rental income (145% – up from 125%). Add to this, anticipated creeping interest rate rises, as well as the tapering of tax relief on BTL mortgages, and the case for residential investment becomes less attractive. These measures may cause existing landlords either to withdraw from the market – thereby potentially reducing the availability of accommodation to rent – or to hold on and increase rents (where sustainable) to meet outgoings.

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Regulated Tenancies

In 2017 Allsop sold 26 regulated tenancy investments by auction (also 26 in 2016). The average yield was 3.63% (4.62% in 2016). The individual yields achieved, however, fluctuated between 2.4% to 4.4%.

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Ground Rent Investments

Average ground rent yields, for investments having 80 years or more to run, have swung between 2.2% and 7.2%. This is reasonably consistent with 2016. This time last year, we identified the fact that investors were bidding more for ground rents having between 80 and 100 years unexpired, thereby attributing reversionary value to longer income streams than the 80 year statutory limit for enfranchisement pricing set by the Landlord and Tenant Act 1967.

This highly specialised market has however recently come under Government scrutiny. In December, the Communities Secretary announced new measures to deal with “unfair and abusive practices within the leasehold system”. Measures to be introduced include legislating to prevent the sale of new build leasehold houses except where necessary (such as shared ownership), requiring that ground rents on new long leases, for both houses and flats, are set at zero and working with the Law Commission to make the enfranchisement process faster and cheaper. A controversial Private Member’s Bill (the Leasehold Reform Bill aka the Leasehold Emancipation Bill), introduced in November last year and due to have its second reading in February, aims to cap the price that a leaseholder would pay to purchase their freehold at no more than ten times the annual ground rent. This was introduced under the “Ten Minute Rule”. It will be met by strong opposition from landlords and is considered unlikely to become law.

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