Buy-to-let specialist lender, Fleet Mortgages, has revealed that all regions of England and Wales saw an annual increase in rental yields for the second quarter in a row, largely driven by continuing stock issues.
Fleet's latest regional snapshot covering Q2 2023 rental yields across England and Wales found that total yields for both countries were up from 5.6% a year ago to 6.3% now - slightly down on the previous Q1 2023 figure of 6.5%.
The regional snapshot covers all areas of England and Wales in which Fleet lends and highlights the rental yield changes that have occurred in each of those regions. In this iteration, the yearly comparison is between Q2 2023 and Q2 2022.
Fleet said increased yields continued to be the consequence of a number of factors, namely an ongoing shortage of rental stock leading to higher rental prices, plus an easing in house price levels.
As a result, there was an increase in annual yields across every single region, however, there was something of a split in terms of quarter-on-quarter changes with only the North West, Wales, East Anglia and Greater London seeing an increase in the yields achieved in Q1 this year.
The North East of England continues to retain its top regional rental yield figure for the twelfth consecutive quarter, posting the same 8.6% yield as the previous quarter, however, both Wales and the North West jumped above Yorkshire and Humberside in the table, up 1.2% and 0.4% respectively on the previous year. East Anglia and Greater London also moved upwards.
The last iteration of the Rental Barometer introduced a raft of new data covering average rates, loan sizes, landlord portfolio numbers and average monthly rental income by region.
With high inflation continuing to impact interest rates, Fleet’s average five-year fixed-rate product rate increased from 5.35% in Q1 this year to 6.09% in Q2, however, this was slightly lower than the average five-year fix across the entire market which was 6.31%.
The lender said the bigger-than-anticipated fall in inflation announced this month was already having an impact on swap rates, and as a result, there was a potential for rates to fall over the next three-month period.
Rental income
Average rental income across the regions where Fleet lends was slightly up from £1,319 per month in the previous quarter to £1,353. Rental incomes ranged from an average of £643 per month in the North East to £2,111 in Greater London. According to the Barometer, gross rental income now exceeded £1,000 in six out of 10 regions, whereas a year ago, this was true for only five regions.
Steve Cox, Chief Commercial Officer at Fleet Mortgages, commented: “Quarter two of 2023 was undoubtedly an eventful three-month period and followed a relatively benign first quarter of the year, with significant increases in product rates which had a clear impact across the wider mortgage market but also specifically within buy-to-let.
“However, as our latest Rental Barometer shows, the fundamentals of the private rental sector across England & Wales continue to be fairly similar, namely a lack of property supply, strong ongoing tenant demand, and house prices continuing to ease.
“This has meant in every single region in which Fleet lends we have seen an annual increase in rental yields, albeit with a number of regions slightly down on the yields we saw in the first three months of the year.
“Rate fluctuations, caused by sticky inflation, clearly had a major impact, most notably in terms of the rates we could offer – which moved upwards – and in terms of both rental cover at the origination of the loan, plus the average loan size, and the percentage of our business which was purchase.
“All have been impacted as landlords, and their advisers, have sought product solutions within a higher interest rate environment, and getting over the affordability hurdle remains a significant challenge for all existing and new landlord borrowers. Hence, why we have seen a growing number of lower rate/higher fee products coming to market.
“There are positives to grasp though, not least the fact we continue to cater for a predominantly professional landlord-focused borrower demographic, the obvious stronger rents and yields that are achievable, and the recent falls in inflation are starting to be felt in the capital markets, with swaps coming off their most recent highs.
“I’m hopeful that, if this continues to be the direction of travel, we’ll see product rates reacting to swaps, and we’ll be able to offer some keener pricing across our range and to explore bringing back certain product types that we would ordinarily be offering.
“For those that can stay invested and who can make the maths work on their properties, buy-to-let remains a strong investment, and we’ll continue to support advisers and their clients to ensure they can get the finance they require for the long-term health of their portfolios.”