Rental yields continue to rise – but the pace slows

Rental yields across England and Wales have continued to increase, according to the latest Fleet Mortgages’ rental barometer.

However, the pace of growth has slowed, suggesting that the rent rises seen in recent years may be coming to an end.

The overall average rental yield for England and Wales now stands at 7.2%, up from 6.9% in the same quarter last year.

Despite this annual improvement, the yield has fallen slightly from 7.6% in the previous quarter.

Annual rental yields increase

Fleet’s commercial officer, Steve Cox, said: “Yearly rental yields across every single region we lend within have all increased, albeit as expected, by smaller amounts and at slower rates, suggesting we are now past the point of the significant increases in rents we saw during the previous 12-18 months.

“It’s our belief that the demand-supply disparity is not as acute as it was previously, however many landlord borrowers are waiting to see what the Budget holds for them, and whether any further increase in taxation or costs are going to need to be faced and paid for.”

He added: “In light of the speculation around potential CGT hikes for those selling additional property as individuals, it will be interesting to see if the percentage of our limited company applications continues to increase.

“This quarter they have actually gone down slightly but our belief is that more and more landlord borrowers are going to be purchasing within these corporate structures, especially if they can avoid any CGT impact when they sell.”

Rents stabilising in most areas

Fleet Mortgages says the slowdown in rent growth is down to rents stabilising in most areas of the country.

Only the East Midlands maintained its rental yield from the previous quarter, while most other regions saw a slight decline.

The North East continues to lead the way with the highest average rental yield at 9.7%, followed by the North West at 8%.

Greater London and East Anglia remain at the bottom of the table with an average yield of 5.9%.

Greater London has the most expensive rents

When it comes to average monthly rent per property, Greater London remains the most expensive, with the average rent increasing to £2,134.

The North East remains the most affordable, with an average monthly rent of £702.

Fleet Mortgages noted that the continued growth in rental yields was a positive for landlord borrowers, especially given the backdrop of falling mortgage rates.

However, many landlords are waiting to see what the Budget holds for them before making further investment decisions.

Fleet Mortgages’ average loan size increased to £196,000, and applications for property purchases rose slightly to 43%.

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