England and Wales have seen rising rental yields for the third quarter in a row, with the total yield up 1.0 to 6.9 per cent on the same period of 2022, according to Fleet Mortgages.
Across all regions of England and Wales the lender’s BTL Barometer shows an annual increase in rental yields with the underlying factors driving the market being an increased demand from tenants, a shortage of available supply, plus a continued dip in house price levels.
Over the past three months there’s been a 1.0 per cent-plus increase in three regions – West Midlands, East Anglia and the South East.
Quarter-on-quarter changes were positive in the North East, Yorkshire & Humberside, West Midlands, South West, East Anglia, South East and Greater London; the only quarter-on-quarter dips were seen in the North West and Wales.
The North East of England continues to retain its top regional rental yield figure for the thirteenth consecutive quarter, posting a further improved 9.1 per cent yield. It is East Anglia and the West Midlands however which saw the biggest percentage jump, up 1.3 per cent on the same quarter last year.
This new version of the Rental Barometer continues to include data covering average rates, loan sizes, landlord portfolio numbers and average monthly rental income by region.
With a softening in swap rates, and the decision by the Bank of England not to hike base rate last month, Fleet’s product pricing dipped in Q3 this year, with the average rate across its range having fallen from 6.09 per cent in Q2 to 5.74 in Q3.
Fleet’s average loan size increased on the previous quarter, up to £187k from £174k, with the average rental cover at loan origination up from 167 to 177 per cent.
The average monthly rent across the regions where Fleet lends was slightly down from £1,380 per month in Q2 to £1,346 per month in this quarter. Rental prices ranged from an average of £678 per month in the North East to £2,457 in Greater London.
Chief commercial officer Steve Cox says: “Many of the themes that have been evident in the buy-to-let and private rental sector throughout 2023 continue to strengthen, particularly when it comes to demand for purchase versus remortgage activity, meeting affordability challenges, tenant demand, property supply, and the overall impact on yields and rents.
“Unsurprisingly, when you add of all this together, we find annual rental yields having grown in every single region compared to last year, and this has resulted in a significant 1.0 per cent increase in yield for England & Wales as a whole.
“With house prices having dipped across the country, the yield figures are strengthening, while property availability compared to tenant demand is pushing monthly rents up in the vast majority of regions, although the Northern regions have seen a dip this month.
“The outlook, at least for the short-term, looks likely to be very similar, particularly in regions like Greater London, the South West and the South East where a shortage of stock is inevitably leading to higher rental prices.
“While portfolio landlords in particular continue to look for opportunities to purchase more property, those with a smaller private rental sector investment are finding it difficult to make the numbers work. It’s why the percentage of purchase business we conducted in Q3 dipped again to 30 per cent from 32 in the last quarter.
“Overall, we remain totally committed to this sector and have been able to cut product pricing in recent weeks as swap rates dipped slightly, and the markets were calmed by the Bank of England’s decision not to raise Bank Base Rate at its last meeting.
“More adjustments will be forthcoming if the rate environment continues to be calmer, and if product pricing can move more towards an average 5.0 per cent rate, then we anticipate business levels will improve as landlords are better able to meet the affordability criteria that comes with today’s marketplace.”