Yields up in almost every part of the UK

Specialist buy to let lender Fleet Mortgages says there’s been both an annual and quarterly increase in rental yields, up from 6 per cent a year ago to 6.5 per cent now.

Fleet says increased yields across all regions reflected both rental stock continuing to be in short supply, very high tenant demand and house price levels easing over the last six months particularly.

As a result, every single region had seen both an annual and quarterly increase in rental yield, except the North West and the South West which had seen quarterly drops of 0.1 and 0.2 per cent respectively.

The North East of England continues to retain its top regional rental yield figure for the eleventh consecutive quarter, up 0.6 per cent on the last quarter, while Yorkshire and Humberside had jumped into second place with a yield of 7.7 per cent. Wales was the significant mover, up 1.1 per cent annually and 0.6 per cent quarter-on-quarter.

Fleet’s average five-year fixed-rate product rate has dropped from 5.81 per cent in the last quarter of 2022, down to 5.35 per cent. The lender said this was down to swap rates continuing to track lower and its own strong appetite to lend to landlord borrowers.

Fleet’s average loan size was now £197,000, up from £172,000 in the previous quarter, with the average rental cover at loan origination up from 169 to 181 per cent. Mortgages for purchase business had dropped slightly from 43 per cent of Fleet’s total lending to 37 per cent, while the number of investment properties owned by landlord borrowers remained at 11, showing a customer base of predominantly larger portfolio players.

Average rental income across the regions where Fleet lends was now up at £1,345 per month, from £1,256 in the last quarter of 2022. This was an annual increase of £135 since the first quarter of last year.

Rental incomes ranged from an average of £660 per month in the North East to £2,049 in Greater London.

Fleet said that while rental yields were increasing in every region, it had not witnessed an increase in rents in all – for example, in the North East while yields remained above eight per cent, rents had decreased from £681 last quarter, with similar trends in both the East Midlands and the South East.

Steve Cox, chief commercial officer at Fleet Mortgages, comments: “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 that 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 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.”

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