Residential Auction Annual Review 2018
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Yield Analysis

Assured shorthold tenancies

Average yields from assured shorthold tenancy investments have risen across the country since 2017. This holds true for London as well as for the rest of the UK. Although 2017 had seen an overall fall in average AST yields, we identified a year ago that investor landlords would face a barrage of financial pressures in 2018.

These included a 3% stamp duty surcharge on Buy to Let (BTL) investments, tougher loan to value lending criteria imposed by the Bank of England and tapering tax relief on BTL mortgages. Interest rates have also risen, albeit marginally. The case for smaller scale residential investment has become less attractive.

This, along with anxieties over our economic and political future in the face of a no deal Brexit, will have contributed to this trend.

Ground rent investments

Ground rents have remained a popular form of investment in this uncertain climate. Longer term security of income is attractive. In 2018, 65 ground rent investments having in excess of 80 years unexpired were offered.

Of these, 60 (92%) were successfully sold. The average yield on such investments fell in 2018 to 5.5% or 18 years’ purchase. 2017 had shown an average yield of 4.85% and 20.6 YP.

There is a cloud hanging over this sector, however, in the form of potential legislation to rule out what has been described in Parliament as “unfair and abusive practices within the leasehold system”. A Private Member’s Bill known as the Leasehold Reform Bill 2017-2019 (aka the Leasehold Emancipation Bill) is currently passing through Parliament. Its aims include the regulation of enfranchisement by leaseholders and the introduction of a cap on enfranchisement prices.