Buy-to-let landlords have bolstered their portfolios and seen returns rise over the past year due to monthly rental yields strengthening.

Against a backdrop of economic and political uncertainty, as well as numerous government-led measures being thrown at the industry over recent years to curb the appeal of buy-to-let investment, property investors' returns have actually recorded a sizeable increase.

The average buy-to-let landlord operating in the UK has seen their total gross rental income surge by 18% year-on-year, according to new data from rental platform Ocasa. This is while many property investors have boosted the size of their portfolios from 6.9 properties on average in 2021 to 8.2 properties today.

The research may come as a surprise to some, with anecdotal reports of landlords reducing their portfolios due to factors such as the introduction of Section 24 affecting the level of tax relief that can be claimed on rental incomes, as well as the 3% stamp duty surcharge on investment properties that has been in place since 2016. The report in fact indicates that, for a large number of landlords, the positives in the industry continue to outweigh the negatives.

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Why is the rental market so strong?

One major factor that is ensuring the buy-to-let sector remains strong is the high level of rental demand. While the housing landscape is set to change as interest rates increase, from a property investment perspective, this is likely to further exacerbate the demand and supply imbalance - making rental homes more sought after than ever as people stay off the property ladder for longer.

The average gross rental income of a single rented property, according to Ocasa, is now £7,891. This means the average buy-to-let investment portfolio is now bringing in gross rents of an average £63,917, based on the average portfolio size, which is 18% higher than it was a year ago.

Jack Godby, sales and marketing director at Ocasa, said of the results: “It’s great to see that, despite the UK government’s best efforts, the buy-to-let sector has really hit the ground running in 2022.”

A number of forecasts point towards the rental market overtaking the residential property market in terms of price rises over the coming years. The ongoing supply deficiency in the buy-to-let space is creating high levels of competition for rental homes, which is pushing prices up.

This could mean that, at least in the short-term, buy-to-let landlords can focus on maximising their rental yields, despite not expecting much immediate capital growth in terms of the values of their property portfolios. Of course, for investors who hold onto their properties for five, ten or even more years, house price growth is inevitably expected to return.

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Choose your location wisely

When house prices are on an upwards spiral, the strategy of choosing a relatively cheap property and waiting for its value to rise as a means of making a profit can seem the most sensible. During more uncertain times, buy-to-let landlords can look at a wider range of factors in order to maximise their return on investment.

For example, being more selective on the type of property you buy can see you reap the best rewards. Research the most popular sized rental property in your chosen area, and focus on choosing the right property type for your target tenant. Increasingly, many young professionals are willing to pay more for a high-quality, more energy efficient rental home.

Location is always a key consideration, but it is particularly important to focus on areas where tenant demand is high when looking to achieve the highest returns. This could include city centre locations that are popular with graduates or young professionals, areas with excellent access to amenities and public transport links, or locations that are earmarked for major regeneration and that will attract more inhabitants in the future.

On a broad, regional scale, Ocasa’s research points to the areas where buy-to-let returns have increased the most. In Yorkshire and the Humber, for example, property investors own the largest portfolios (15.5 properties on average), which has increased by 50% over the past year as buyers have been drawn to the market.

In the north west, the average estimated rental income for buy-to-let landlords has increased by 37% over the past year, while it has risen by 42% in the south west and by the same level in London.

Of course, when honing in on your next property investment opportunity, it is crucial to look at more than just regional trends, and to factor in specific cities, towns and suburbs. Places with major universities often command competitive rental yields due to the level of demand, and you can also research areas where major transport or infrastructure improvements are on the cards, or where new business districts and employment opportunities are popping up.

Godby comments: “Like any area of the property sector, investment levels, property prices and rental values can vary drastically from one region to the next and this understandably has an impact on the size of a buy-to-let portfolio, the rent achieved per property and the overall return made.

"However, it’s clear that strength is building across the market with respect to an increased level of income. The fact that only two regions have seen the average portfolio size reduce is also a testament to the resilience and consistency of bricks and mortar as an investment vehicle.”