Landlords in parts of the country with the lowest rental returns could face refinancing problems if they are approaching the end of their mortgage terms, according to specialist lender, Octane Capital.
Their research shows that properties in low-yielding areas risk falling outside lender interest coverage ratio (ICR) requirements.
Octane Capital analysed average gross yields achieved across Great Britain since 2023 to reveal the lowest yielding areas.
The research shows that, across the UK market as a whole, the average rental yield over the last three years has sat at 5.7%. However, yields have varied widely, with certain regions consistently underperforming.
Scotland has posted the strongest returns with a three-year average yield of 6.2%, with the North East (5.2%) and North West (5%) also performing well.
The South East is home to the weakest returns, with investors seeing an average yield of just 4.1% since 2022. The East of England has also struggled at 4.2%, followed by the East Midlands at 4.2% and the West Midlands at 4.4%. London, despite stronger recent rental growth, has averaged 4.5% over the same period.
Limited refinancing options
However, when analysis the market at a more granular level, Octane Capital found that it’s Kensington and Chelsea that ranks as the lowest yielding area of the UK market, where average yields have sat at just 2.8% across the last three years,
Richmond upon Thames (3.0%), Elmbridge in the South East (3.0%), Waverley in Surrey (3.0%), and Derbyshire Dales (2.7%) also ranked amongst the areas offering the weakest returns to investors.
Other weak performers include Powys in Wales (2.9%), South Hams in the South West (2.9%), North Norfolk (3.1%), Rutland (3.1%) and Uttlesford in the East of England (3.1%).
Jonathan Samuels, CEO of Octane Capital, said: “Our latest research highlights the difficult reality for landlords in low-yielding parts of the market, where properties may no longer fit within ICR requirements as they approach the end of their current mortgage terms.
For many, the result is limited refinancing options from mainstream lenders and this is where specialist finance plays a vital role.
Octane Capital’s full data tables can be viewed here.
