All regions of England and Wales have shown an annual increase in rental yields for the second quarter in a row, according to Fleet Mortgages’ Buy-to-Let Barometer.
Total yield for both countries was up from 5.6% a year ago to 6.3% now; however, this was 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.
Fleet said increased yields were 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.
There was an increase in annual yields across every single region, but quarterly, only the North West, Wales, East Anglia and Greater London saw an increase on the yields achieved in Q1.
The North East of England retained its top regional rental yield figure for the 12th consecutive quarter, posting the same 8.6% yield as the previous quarter, but 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.
With high inflation continuing to impact on interest rates, Fleet’s average 5-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 5-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.
Fleet’s average loan size was £174,000, down from £197,000 in the previous quarter, with the average rental cover at loan origination also slightly down from 181% to 167%.
Mortgages for purchase business dropped from 37% of Fleet’s total lending to 32%, while the number of investment properties owned by landlord borrowers increased from 11 to 12, continuing to show a customer base of predominantly larger portfolio players.
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 (pictured), chief commercial officer at Fleet Mortgages, said: “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.”
He added: “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.”
He continued: “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 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.”
