How much yield does a buy-to-let property in Newington Green deliver?
The low supply of good quality rental homes in and around Newington Green means landlords in this vibrant part of North London can generate healthy returns.
This is despite the government introducing a 3% stamp duty surcharge on second homes, which pushes the tax payable on a £399,950 modern one-bed apartment in Newington Green Road from £9997.50 to £21,996.
To work out the level of return an investment property will deliver, landlords with property in North London need to calculate the rental yield – the rental return as a percentage figure of the property purchase price.
LendInvest reports that rental yields between 2010 and 2016 in the whole of the N postcode was 5.7%, although this calculation assumes landlords receive £17,940 in rent payments each year.
To calculate your buy-to-let investment’s rental yield, take the total rent received over a year. Assuming the one-bed property in Newington Green Road, which has exceptional views of the Shard and the city skyline and a rental value of £1400 per calendar month, that would work out to be an annual rental income of £16,800.
Next, take the purchase price of the property (£399,950) and add that figure to its buying costs (£21,996 stamp duty plus £2000 professional services fees). That gives you a total of £423,946.
Now perform the following calculation: 16800 ÷ 423946 x 100 = 3.96%.
However, the above calculation assumes the investment property was purchased without the need for a mortgage.
To work out your annual return or yield taking the property loan into account, the annual mortgage costs must be subtracted from the £16,800 received in rent.
Let’s assume the investor takes out an interest-only buy-to-let mortgage for 80% of the purchase cost (£319,960) at a rate of 3%. That would result in monthly payments of £799 or £9588 per year.
Subtracting that figure from the annual rent receipts of £16,800 leaves a pre-tax profit of £7212 per year.
To calculate the yield, take the deposit put down (£79,990) and add that figure to the buying costs (£18,800). This gives a total of £98,790.
Now perform the following calculation: 7212 ÷ 98790 x 100 = 7.3%
A quick glance at the best savings rates available on easy access accounts, reveals no more than 1.3% is currently available. Not only that, the value of property in Newington Green and other parts of North London that are in easy reach of the City is likely to appreciate in value if the investment is held for 10 years or more.
It is wise to bear in mind, however, that a landlord’s true income from a buy-to-let investment is the amount of rent left over after all the other expenses associated with the property have been met. These can include variables such as void periods, maintenance, insurance and the fees charged by letting agents.
But even subtracting 25% from the £7212 annual pre-tax profit gives a yield of 5.47% on top of any appreciation of the property’s value.
Every buy-to-let investment can deliver a different yield depending on the cost of the property and the rent charged. For this reason, the figures quoted above are for illustration only.
M&M Property has a database of buy-to-let investors who have expressed an interest in a wide range of property in and around Newington Green, Stoke Newington, Highbury, Islington and Hackney. If you want to maximise the sale value of your property, contact us today and learn what it could be worth.