All regions see rental yields go up

All regions have seen an annual and quarterly rise in rental yields – up from 6% a year ago, and 6.4% in the last quarter of 2022 to 6.5% now, research reveals.

According to Fleet Mortgages, the growth in yields is down to a shortage of rental stock and high tenant demand.

Also, the easing of house price rises has helped the yield enjoyed by investors.

‘Rental yield has increased in every single region’

Fleet’s chief commercial officer, Steve Cox, said: “There is perhaps no surprise to see rental yield has increased in every single region in which Fleet lends in England and Wales, given a combination of factors including lower supply of property, increased tenant demand, house prices falling and product rates rising.

“Those regions which have topped the ‘charts’ for some time, continue to perform well but it is also positive to see all other regions showing stronger yields and again it is also not surprising to see rental incomes – on the whole – also on the increase.

“In terms of mortgage product choice, rates and the like, the mini-Budget still has a lot to answer for, and landlord borrowers are going to be dealing with its consequences for a number of years to come.”

‘There has been a focus on longer-term products’

He added: “What we initially saw was a move towards tracker products, but this has fallen significantly over the last six months, and instead there has been a focus on longer-term products, particularly those with higher fees and lower rates, which allow borrowers to get over some of the higher affordability hurdles that have become prevalent.

“Our feeling is that the future is likely to move back towards a return for two- and five-year product demand, and if swap rates continue to move lower this will be cemented in the market, with any ongoing movement providing lenders with more pricing options, leading to better affordability for longer fixed-rate products.”

The market is dominated by portfolio landlords

Mr Cox also says that the market is dominated by portfolio landlords, particularly as those with only one or two properties are struggling to stay profitable because of rising mortgage costs.

He added: “Purchase activity has slipped slightly but is still over a third of our business and this is coming from portfolio players continuing to purchase residential property with a long-term investment horizon.

“We do not see that tailing off any time soon.”

The top regional rental yield figure

The buy-to-let specialist lender says that the North East of England retains its place with the top regional rental yield figure for the eleventh consecutive quarter, up 0.6% on the last quarter.

Yorkshire and Humberside have leapt into second place with a yield of 7.7%, while Wales was the significant mover, up 1.1% annually and 0.6% quarter-on-quarter.

The lender says its average loan size was now £197,000, up from £172,000 in the previous quarter, with the average rental cover at loan origination up from 169% to 181%.

Mortgages for buying businesses have shrunk from 43% of Fleet’s total lending to 37%, while the number of investment properties owned by landlord borrowers remained at 11.

The figures, the firm says, show a customer base of predominantly larger portfolio players.

The average rental income across the regions

The lender also reveals that the average rental income across the regions was now up at £1,345 per month, from £1,256 in the last quarter of 2022.

This was an annual increase of £135 since the first quarter of last year.

Rental incomes ranged from an average of £660 per month in the North East, to £2,049 in Greater London.

Fleet points out that while rental yields were increasing in every region, it had not witnessed an increase in rents in all.

For example, in the North East while yields remained above 8%, rents had decreased from £681 last quarter, with similar trends in both the East Midlands and the South East.

Share This Article