The total average rental yield for England and Wales in Q3 2024 was 7.2%, marking an annual increase of 0.3% on the same quarter in 2023, according to Fleet Mortgages’ Buy-to-Let Rental Barometer.
While this figure may signal a marginal yearly increase, it also represented a fall of 0.4% quarter-on-quarter.
The regional snapshot covered all areas of England and Wales in which Fleet lends, and highlighted the rental yield changes that occurred in each of those regions.
Rental yields remained solid, with every region across England and Wales showing an annual increase; however, the year-on-year percentage increases slowed, while almost all regions showed a quarterly dip.
The lender put this down to a stabilisation of rental levels in most areas of the country after a long period when rents continued to rise significantly.
Of the 10 regions, only the East Midlands maintained its rental yield figure from the previous quarter (7.5%) and while Yorkshire & Humberside was up slightly by 0.1%, all others saw a dip.
The North East continued to lead the average rental yield table at 9.7% with the North West at 8% in second place.
Both were in the same position in the last Rental Barometer although there has been movement below this.
Yorkshire & Humberside moved up to third place from fifth, the East Midlands moved up to fifth from sixth, while Wales dropped to sixth from third.
Notably, Greater London was not alone at the bottom of the rental yield table for the first time – it and East Anglia had an average yield of 5.9% while both the South West and South East had 6.1%.
The clear North-South divide from more recent iterations remains, albeit the gap between the regions is closing.
When it comes to average monthly rent per property, the highest continued to be in Greater London, up from £2,024 to £2,134, followed by the South East at £1,572.
North East regional properties continued to be the most affordable, with the monthly price of an average property falling quarter-on-quarter from £768 to £702.
Fleet said strong rental yields continued to be a positive for landlord borrowers, particularly against a backdrop of falling mortgage rates.
It added that, while existing landlords were waiting to hear what the Budget had in store for them before making further investment decisions – particularly in terms of adding to portfolios – 10% of its applications came from first-time landlords.
The Rental Barometer also includes data covering average rates, loan sizes, and purchase and remortgage split figures.
Comparing the third and second quarters of 2024, Fleet’s product pricing for both 2- and 5-year fixed-rates decreased, from 5.05% to 5.02% for the former, and 5.69% to 5.24% for the latter.
Given recent pricing movements, Fleet said it anticipated this would fall further in Q4.
Fleet’s average loan size increased significantly on the previous quarter, up once again to £196,000 – the same figure as Q1 this year – from £171,000 in Q2, and the average rental cover at loan origination was 176%.
Applications for property purchases in Q3 2024 also continued to increase, albeit slightly, up from 42% last quarter to 43%, while 77% of all applications through the quarter were from limited company borrowers – down from 80% – while private investor borrower applications were up from 20% to 23%.
Steve Cox, chief commercial officer at Fleet Mortgages, said: “As can be seen from this latest iteration of the Rental Barometer, 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 to 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.
“Regionally, it is those in the North of the country that continue to top our Rental Yield table but we have seen a shrinkage in the difference between North and South and while regions such as Greater London and the South East continue to show an uplift in their average monthly rent per property, in the North East, for example, this has actually dropped from the last quarter.
“It’s still a solid and stable picture, helped no doubt by the fall in lending costs, which clearly makes affordability easier to achieve, albeit we are still a little way off the rates available in the pre-‘mini-Budget’ era.”
He added: “However, one of the real positives over the last few months has been the rate environment and its continued downward trend, clearly helped by the Bank of England’s decision to cut Bank Base Rate in August, the anticipation of more cuts to come and the falling swap rates over the same period.
“At Fleet this combination has allowed us to cut rates further, as is reflected in our average two- and five-year fixed-rates coming down again, plus we’ve also been able to reintroduce and launch new products back to market, particularly our Energy Performance Certificate (EPC) A to C products which offer rate discounts for those purchasing or remortgaging properties with these higher EPC levels.
“In light of the speculation around potential Capital Gains Tax (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.
“The next few months promises to be very interesting indeed, especially when we learn the details of the Budget and how it is going to impact landlords.”
