Fleet Mortgages, a buy-to-let specialist lender, has released its Q1 2023 Buy-to-Let Rental Barometer, covering rental yields across England and Wales.
The report shows an annual increase in rental yields in every region, with the highest average yield on record at 6.5%, up from 6% a year ago and 6.4% in Q4 2022.
Increased yields are attributed to a shortage of rental stock, high tenant demand, and easing house price levels over the past six months.
The North East of England remains the top region for rental yield for the eleventh consecutive quarter, with Yorkshire and Humberside in second place and Wales showing a significant 1.1% annual increase.
Fleet Mortgages’ average five-year fixed-rate product rate has dropped to 5.35% from 5.81% in Q4 2022.
The average loan size increased to £197k, up from £172k in the previous quarter. Average rental income across the regions reached £1,345 per month, up from £1,256 in Q4 2022.
Steve Cox, chief commercial officer at Fleet Mortgages, said: “We are very pleased to deliver this latest version of our Rental Barometer which this quarter contains a raft of new data and information on what is happening in the private rental sector and how the buy-to-let mortgage market is shifting in order to accommodate the changing needs and circumstances of landlord borrowers.
“There is perhaps no surprise to see rental yield has increased in every single region in which Fleet lends in England and Wales over the last year, given a combination of factors including lower supply of property, increased tenant demand, house prices falling and product rates rising.
“Those regions which have topped the ‘charts’ for some time, continue to perform well but it is also positive to see all other regions showing stronger yields and again it is also not surprising to see rental incomes – on the whole – also on the increase.
“In terms of mortgage product choice, rates and the like, the ‘mini-Budget’ still has a lot to answer for, and landlord borrowers are going to be dealing with its consequences for a number of years to come.
“What we initially saw was a move towards tracker products, but this has fallen significantly over the last six months, and instead there has been a focus on longer-term products, particularly those with higher fees and lower rates, which allow borrowers to get over some of the higher affordability hurdles that have become prevalent.
“Our feeling is that the future is likely to move back towards a return for two- and five-year product demand, and if swap rates continue to move lower this will be cemented in the market, with any ongoing movement providing lenders with more pricing options, leading to better affordability for longer fixed-rate products.
“Overall, the market continues to predominantly be the preserve of portfolio landlords, particularly as those with only one or two properties struggle to stay profitable given the rise in mortgage costs.
“Purchase activity has slipped slightly but is still over a third of our business and this is coming from portfolio players continuing to purchase residential property with a long-term investment horizon. We do not see that tailing off any time soon.”
