New-build rental yields

New-build rental yields accelerate with build-to-rent boom

Landlords and property investors seeking the highest rental yields are increasingly looking at new builds, with tenants paying a premium for quality.

For landlords looking to maximise returns, spending more at the outset might seem counter-intuitive when thinking about future profits. However, trends and attitudes in the private rented sector are swiftly changing, and new research shows it’s definitely time for a rethink.

While new-build homes may come with a higher price tag, it seems their strong appeal for tenants looking for a place to call home wins out. On average, renters will pay a 23% premium for a newly built property compared to an existing one, according to data from Unlatch.

One of the big drivers behind this trend is the rise of build-to-rent as a property type. The sector consists of mainly new-build, purpose-built properties for the modern rental market. Tenants get much more than bog-standard rental digs, and expect to pay more as a result.

Thinking about rental yields

In terms of rental yields, landlords in the north-west can expect the best results. New-build rentals in this region generate average rental yields of 4.4% for investors. The national average is 3.7%, says Unlatch.

In England, the north-west is followed by the West Midlands at 3.9%, the south-west at 3.8%, and Yorkshire and the Humber also bringing in average rental yields of 3.8%.

Lee Martin, head of UK for Unlatch, said: “New-build homes command a far higher price in the sales market and this house price premium will impact the initial yield an investor can expect to see compared to an existing home, despite these properties commanding a far higher value where monthly rental income is concerned.

“However, they are fast becoming the investment route of choice and this trend is undoubtedly being driven by the BTR boom and the increasing demand from tenants for better rental homes with a lifestyle focus.”

Getting more for your money

Often when thinking of new-builds, people think of the hefty price tag. While there is normally a premium with a newly built property, there is more to think about in the long run, believes Martin.

For property investors who want to play the long game, attract good, long-term tenants, and see their investment pay off over time, new-builds is an avenue worth exploring.

Martin adds: “There are a wealth of additional benefits that new homes offer investors when it comes to boosting their profit margins. Running costs are considerably lower as new-builds are substantially more energy-efficient and the better level of build quality and compliance means that maintenance costs are also reduced.

“The BTR proposition, in particular, also offers the opportunity to invest in the rental market but with a more hands-off approach, which can save investors a considerable amount of personal time and money.”

BTR housing sector is one to watch

It is probably one of the most talked about “rising stars” in the UK property market at the moment. Although popular in other countries, such as the US, this housing type has taken longer to grow in popularity in the UK, which is partly due to the country’s significant focus on homeownership.

But house prices in the UK have made it even more difficult for first-time buyers to get onto the housing ladder, meaning many are renting until much later in life.

What’s more, people’s lifestyles today lend themselves more than ever to renting. People enjoy more flexibility, and being able to move easily when new career prospects present themselves. Another rising trend is of young people leaving London to relocate elsewhere, which often involves renting.

Recent statistics show that the number of purpose-built units under construction has risen by 8% in the past year. Completions have gone up by 26% during the same periods.

With tenant demand continuing to rise, and not being met by the existing rental market, it is proving an increasingly popular asset class among property investors. Those seeking strong rental yields as well as long term tenants are more inclined to choose a BTR option.

BuyAssociation specialises in connecting property investors with developers across the UK who can offer a range of investment opportunities. We have a range of build-to-rent property investments available for our investors to access. Whether your focus is on long-term rental yields or capital appreciation, get in touch today to speak to one of our consultants.

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