UK rental yields are on the rise – Fleet

There has been a 0.4% rise in the total average yield for England and Wales, reaching 7.1% in the first quarter of 2024, a buy to let rental index reveals.

According to Fleet Mortgages, despite a 0.4% drop in yield for landlords in the North East, rented properties there still deliver an impressive average rental yield of 8.4%.

That puts the region in second place in Fleet’s top 10 areas for yields – and its report highlights a clear North/South divide, with northern regions dominating the top spots.

Fleet says that Yorkshire and Humberside has leapfrogged to the top, surpassing the North East, which has traditionally held the number one position.

Meanwhile, Wales, which had the highest average rental yield last quarter, has slipped to fifth place.

‘Northern regions once again making up the top three’

Fleet’s chief commercial officer, Steve Cox, said: “In a sense, this iteration of our rental barometer returns to the status quo, with the northern regions once again making up the top three on the table, after Wales had briefly headed the list for the last quarter of 2023.

“It’s positive to see virtually all regions within which Fleet lends in England and Wales showing a positive year-on-year increase in rental yield, with Yorkshire and Humberside showing a significant 1.3% increase, which means it now tops the table with a very strong 8.5%.

“Indeed, the table itself mirrors the geography of England and Wales, with the lower rental yields for the Southern regions, which you might expect given, on average, the greater capital values of properties ‘down South’.”

He added: “What continues to be apparent is the disconnect between supply and demand in the private rental sector, and with significant increases in population numbers, the continued difficulty in purchasing a home, and a lack of action on this government’s part to improve housing supply, then we’re likely to see ongoing and strong yield throughout the rest of 2024.”

Annual increase in regional yields

Fleet’s rental index suggests that the annual increase in regional yields, which has been seen in all regions except the North East, is due to a combination of limited supply and strong tenancy demand.

This, in turn, has led to higher rents.

Fleet says it is monitoring Bank Base Rates and swap rates but is predicting further interest rate falls from the summer – if not before.

The lender also says that its average loan size increased to £183,000, from £175,000 in the last quarter of 2023.

The average rental cover is also up from 170% to 172%.

‘Landlord borrowers had a difficult 2023’

Mr Cox said: “Clearly, landlord borrowers had a difficult 2023 in terms of mortgage affordability and costs, but there is further positive news in terms of falling mortgage product rates, and the anticipation is we’ll see this continue to track downwards.

“There is an appetite to add to portfolios where the numbers add up, and we’ve seen our own purchase business ticking up quarter-on-quarter.

“Again, our assumption is that a falling rate environment will give landlords more confidence and money to be able to buy, and while we don’t see remortgage/purchase business parity being on the cards anytime soon, we do think we’ll see more purchasing as a percentage of our business through the rest of 2024.”

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