Marked Increase in Yearly Rental Yields Across England and Wales

Posted on Thursday, 19 October, 2023

Fleet Mortgages’ Latest Market Analysis Shows Third Consecutive Quarterly Rise in Annual Rental Yields

Specialist buy-to-let lender, Fleet Mortgages, has unveiled the most recent edition of its Buy-to-Let Rental Barometer, which presents rental yield data for Q3 2023 across England and Wales, comparing it to the same period in 2022.

Throughout all regions of England and Wales, the Barometer demonstrates an annual uptick in rental yields for the third consecutive quarter, with the overall yield for both countries rising by 1% to 6.9% compared to the corresponding quarter in 2022. This also marks a 0.6% increase from the Q2 2023 figure of 6.3%.

Fleet Mortgages has attributed these consistent gains in rental yields to ongoing factors such as heightened tenant demand, limited housing supply, and continued decreases in house prices.

For the second consecutive quarter, annual yields have risen across all regions, with increases of over 1% in three areas: West Midlands, East Anglia, and the South East.

In terms of quarterly changes, positive shifts were observed in the North East, Yorkshire & Humberside, West Midlands, South West, East Anglia, South East, and Greater London. The only quarters that experienced declines on a quarterly basis were the North West and Wales.

The North East of England has maintained its status as the top region for rental yields for the thirteenth quarter in a row, posting an improved yield of 9.1%. Notably, East Anglia and the West Midlands saw the most significant percentage increase, climbing by 1.3% compared to the same period in the previous year.

This updated Rental Barometer continues to provide data on average interest rates, loan sizes, landlord portfolio sizes, and average monthly rental income by region.

With a decrease in swap rates and the Monetary Policy Committee’s decision not to raise the Bank Base Rate, Fleet Mortgages reduced its product pricing in Q3, with the average rate across its range falling from 6.09% in Q2 to 5.74% in Q3.

Fleet Mortgages’ average loan size increased from £174,000 to £187,000, and the average rental cover at the time of loan origination rose from 167% to 177%.

Mortgages for property purchases accounted for a declining share of Fleet’s total lending, dropping from 32% to 30%, indicating reduced acquisition activity. Meanwhile, the number of investment properties owned by landlord borrowers remained stable at 12.

The average monthly rent in regions where Fleet operates saw a slight decrease from £1,380 per month in Q2 to £1,346 per month in the current quarter. Rental prices ranged from an average of £678 per month in the North East to £2,457 in Greater London.

Regions in the North, including the North East, North West, and Yorkshire & Humberside, experienced marginal drops in monthly rental prices, while all other regions recorded increases compared to the previous quarter.

Steve Cox, Chief Commercial Officer at Fleet Mortgages, stated:

“Many of the trends observed in the buy-to-let and private rental sector throughout 2023 continue to solidify, particularly in terms of demand for property purchases versus remortgage activity, affordability challenges, tenant demand, property supply, and their combined impact on yields and rents.

Not surprisingly, these factors have contributed to annual rental yields increasing in every region compared to last year, resulting in a significant 1% overall gain for England and Wales.

With declining house prices nationwide, yield figures are strengthening, while the imbalance between property availability and tenant demand is pushing up monthly rents in the majority of regions, although the Northern regions have witnessed a dip this month.

The near-term outlook appears likely to follow a similar pattern, especially in regions like Greater London, the South West, and the South East, where a scarcity of housing stock is inevitably leading to higher rental prices.

While portfolio landlords continue to seek opportunities to purchase more properties, those with smaller investments in the private rental sector are finding it challenging to make the numbers work. This is why the percentage of purchase business we conducted in Q3 decreased to 30% from 32% in the previous quarter.

Overall, our commitment to this sector remains unwavering, and we’ve been able to reduce product pricing in recent weeks as swap rates have slightly decreased. Should the rate environment continue to stabilize, further adjustments will be made, and if product pricing can gravitate towards an average rate of 5%, we anticipate an uptick in business as landlords can better meet the affordability criteria inherent in today’s market.”