Popular buy to let lender Fleet Mortgages’ latest rental yield index shows the consequences of increasing property prices in many regions of the country.

Comparing the final quarters of both the 2019 and 2020 calendar years, Fleet finds that yields on residential buy to lets in England were on average 5.7 per cent –  down 0.3 per cent on a year ago. 

For the second successive quarter the North East of England posted the top rental yield regional figure of 7.9 per cent, although this too was down – by 1.5 per cent – on a year earlier. 

Only two regions of England posted positive rental yields over the period – the East Midlands and the South West.

Fleet believes the rental market UK-wide is broadly stable and the demand for the private rental sector remained strong, fuelled by the formation of more new households.

Fleet also analyses the portfolio landlord sector – those investors with four or more properties with buy to let mortgages. 

It says the typical portfolio landlord has eight properties in their portfolio, generating an average rental yield of 5.7%.

These portfolio landlords are more likely to purchase property during the fourth quarter of last year than a year earlier, fuelled by the stamp duty holiday.

There’s also been a rise in purchases via limited companies, which attracts more tax benefits; in Q4 2019, some 50 per cent of all purchases by portfolio landlords were through a limited company, and this rose to 67 per cent in the same period in 2020. 

Steve Cox, chief commercial officer at Fleet Mortgages, says:“One of the key themes of 2020 was the post-lockdown house price increases that we saw right across the country, particularly with pent-up demand being unleashed, the supply of properties to market still relatively low, and policies like the stamp duty holiday which, in many cases, produced savings which ultimately were utilised by purchasers in higher offers.

“Those house price increases have undoubtedly resulted in a dampening of rental yields in almost all the regions Fleet lends in. However, in both the East Midlands and the South West we still saw yearly increases, and both the East Midlands and Greater London posted quarterly rises.

“The point to make however is that rental yields are still holding up well, with every single region showing yields of five pr cent and above, plus we also envisage that these types of figures are unlikely to drop significantly throughout the rest of 2021.

“Demand for private rental property remains strong and, coupled with a lower supply level in most parts of the UK due to the lack of social housing available, the options for many tenants lie purely in the private rental space.

“The research also shows that landlords, in particular portfolio landlords, have looked to take advantage of the stamp duty holiday. We saw an increase in purchase activity in the second half of last year, and the focus is now on ensuring those purchases complete before the deadline finishes at the end of March.

“Overall, the outlook for the private rental sector remains positive, and if there is a slight correction in terms of pricing in 2021, we anticipate that professional landlords will seek to add to portfolios in order to meet the increased demand from tenants.”