Two-bedroom flats in Chiswick have strongest rental yield according to new research

The latest quarterly house price review, which tracked price changes, rental movements and optimum investment yields across London, revealed that current market conditions provide excellent investment opportunities for professional landlords and buy-to-let investors.

According to Hamptons, overall investment yields have risen from 4.5% in Q1-2008 to 4.7% in Q2-2008, primarily as a result of the decline in capital values.

Rental demands were flat compared with the first quarter, with the best returns still found from smaller one-bed and two-bed properties, the return on a one-bed in London is in line with the Bank of England base rate at 5.0%.

Excluding the effect of the tennis championship on the Wimbledon area in Q2, the strongest yield in London can be found from a two-bed flat in Chiswick at 6.6%. In addition, leading returns can be found from a one-bed in Clapham (6.4%) or two-bed property in Islington (6.4%).

Research figures across London illustrate a 40% rise in the amount of rental stock currently available and a 9% rise in the number of lettings applicants. This variety of choice and growing number of properties is keeping rental levels competitive.

Smaller is stronger when it comes to rental yield

Across all property types tracked, ranging from a one-bed flat to a five-bed detached house the largest percentage decline in sales values was at the lower end, with one-bed properties down an average 5.7% and two-bed properties down 6.2%. The strongest average yields in London for Q2-2008 were found in the City (5.4%), Clapham (5.2%) and Kensington (5.1%).

In line with previous data releases, the return from one-bed flats through to three-bed flats, sits higher than larger properties - with a one-bed averaging 5.0% (up from 4.85% in Q1-2008), as opposed to a larger five-bed detached property, where the yield was as much as 50 basis-points lower at approximately 4.5% (up from 4.1% in Q1-2008).

Figures reveal that London based buyers are in a particularly strong position to take advantage of slowing prices outside the capital. For example, a three-bed flat in London (offering 1,000 square feet) is approximately £765,000. By adding around £115,000 to this budget they could purchase an average five-bed house in the country with a garden (3,000 square feet of accommodation), in many convenient commuter locations across the South East.

Rob Bruce, research manager, Hamptons International, “Matched to falling capital values across the last quarter, and increasing rents in many areas of the country, professional landlords and buy-to-let investors can capitalise on opportunities despite difficulties in the credit markets”.

Analysis / comments from Christian Harper at Oliver Finn

July 29, 2008