The Intermediary – September 2025 - Flipbook - Page 28
BUY-TO-LET
In focus
Assessing yield in
today’s market
F
or many investors, yield
is the primary datapoint
that indicates whether
or not a property
investment makes sense.
For brokers, it remains
a central reference point, and for
investors, it oen tips a decision.
Yet the path to calculating yield is
rarely straightforward. Interest rates
may have seled, but at a higher level,
and this continues to interact with
slower rental growth and persistent
cost pressures.
Understanding how these elements
work together is paramount.
Historical valuations
Many investors still rely on
assumptions formed in a different
economic climate. It is not uncommon
to hear someone argue that a property
worth £1m three years ago should be
worth more today.
However, when the value is
determined by income, the calculation
depends not only on the rent but also
on the return an investor expects.
When base rates were near zero,
a gross yield of 5% might have been
sufficient. Now, investors are more
likely to seek 8% or more. The same
rental income supports a lower capital
value, and without significant rental
growth to bridge the gap, the end
valuation may fall short.
Complicated picture
On new lets, Zoopla reports rents
rising by just 2.8% in the 12 months
to April, with the average new let at
£1,287 per month. Rightmove’s Q2
index shows the average advertised
rent outside London at £1,365, a 3.9%
annual rise, and the slowest since
2020. In July, Hamptons recorded a
0.2% year-on-year fall in new let rents,
the first decline in five years, with
London down by around 3%.
By contrast, the Office for National
Statistics (ONS) measure, which
tracks all tenancies rather than just
26
The Intermediary | September 2025
new lets, reports an increase of 6.7%
over the same period.
Together, these datasets tell a more
nuanced story. While rents across the
whole stock have risen, the income
achievable from a fresh leing may
not match past growth rates. This
distinction maers.
Benchmarks reveal
A sound benchmark provides essential
context. According to Global Property
Guide, the UK’s average gross rental
yield stood at 7.03% in Q2 2025, up
from 6.73% in Q4 2024.
The regional variations are
considerable. MoneyWeek identifies
Cardiff ’s CF24 postcode with yields
of 8.9% and Plymouth’s PL4 postcode
at 10.2% – both well above the
national average.
These figures offer useful reference
points, yet they still mask the
differences between individual
properties. A well-located house in
multiple occupation (HMO) in a
strong rental area may comfortably
outperform the average, while a
poorly executed conversion could fall
short, even in a high-yielding region.
Complex strategies
This pursuit of higher yields has
encouraged some investors to move
into more complex strategies. Serviced
accommodation schemes, assisted
living projects, and large-scale multiunit conversions or HMOs are now
more common. In certain cases, prelet agreements with local authorities
or housing associations are in place,
offering an apparent level of security.
Even so, the viability oen depends on
the operator’s ability to manage them
effectively. For those without relevant
experience, the operational demands
can be substantial. This risk must be
considered alongside returns.
Costs and timelines are also factors
that connect directly to yield. Skilled
labour shortages and high materials
prices continue to influence project
GAVIN DIAMOND
is CEO at Inspired Lending
delivery, and the BCIS forecasts that
construction costs will rise by around
14% over the next five years. These
pressures can erode margins and
delay the point at which stabilisation
is achieved.
Criteria flexibility
These complexities underline the
value of a flexible approach. At
Inspired Lending, our parameters are
deliberately kept broad, allowing for
the consideration of cases that fall
outside rigid, standardised criteria.
Where the loan-to-value (LTV)
is low and the exit plan is clear, it is
sometimes possible to proceed on the
basis of a desktop valuation supported
by a site visit, cuing down the time
between application and completion.
On occasion, we have stepped in
where other lenders were unable to
accommodate specific exit structures
or works requirements, and in doing
so, seen deals progress that might
otherwise have stalled.
Yield in perspective
In the end, yield is not a static
measure. It moves with borrowing
costs, investor sentiment, rental
performance, project delivery, and
operational capability.
Brokers who take all of these
elements into account – and who
explain their implications clearly
to clients – can help ensure that
investment decisions are made
with a realistic understanding of
the likely outcomes. That, in turn,
supports not just successful funding,
but sustainable returns in a market
where small changes in the numbers
can have a significant effect on
the result. ●
