However, without securing a decent yield, getting to the point where you might benefit from any capital gains is going to be tricky, and it’s why landlords will be heartened to see the latest average rental yield figures from our regular, quarterly Rental Barometer.
Covering the last three months of 2022, the figures reveal annual increases in yields across six out of the 10 regions of England and Wales, with two staying the same, and only two seeing small drops. The quarter-on-quarter picture is even stronger, with eight out of 10 regions seeing an increase.
This, after a period of 12 to 18 months, when the picture was somewhat different, with most of our quarterly Barometers showing yields falling across the vast majority of regions in which Fleet lends.
The average across England and Wales is now up at 6.2 per cent, while all regions are at least above five per cent – Greater London as you might expect is the lowest at 5.2 per cent – with six out of the other nine above six per cent.
Of course, rising rental yield only tells part of the story because – as advisers will know only too well – buy-to-let lending and activity is an increasingly complex picture and there is much to unpack for landlords when it comes to deciding on whether to make a purchase or not.
Difficult decisions for landlords
Yes, rents are going up but rising rents don’t necessarily mean rising profits for landlords. In many cases, quite the opposite with costs outweighing rental income, which has left many landlords having to make some difficult decisions, particularly those who may only have one or two properties.
The reality is that rents are rising for a number of reasons, the most significant being the lack of supply in the private rental sector (PRS) but also in terms of the requirements to cover increased costs, whether those are mortgage finance costs, utility and energy bill increases – large numbers of houses in multiple occupation (HMO) landlords, for example, include bills in monthly rents – or the ongoing costs associated with being renting out a property.
As mentioned, over the past 12 to 18 months we’ve seen rental yields sliding back, and in certain regions – perhaps most notably in Greater London – the rental yield being achieved was significantly down on other areas of the country, most prominently in the North.
That, of course, is still the case now. Our Barometer shows the top three regions for rental yield are all in the North of England – the North East, North West, and Yorkshire and Humberside – and acquisitive landlords who might normally have all their properties in other parts of the country, have increasingly looked into these areas in order to secure the yields that remain achievable there.
A glimmer of hope
What we can say is that yields going up is positive, because it provides an ongoing benchmark that landlords can achieve in order to stay invested and (hopefully) in order to continue to invest.
It’s an obvious point to make but the PRS is crying out for increased supply of homes, and the ability to achieve the yields required, is a crucial part of being able to make an investment property work.
The other point to grasp is that the landscape for property investment has becoem increasingly complex, and the need for advice has never been greater. Coupled with good provision of buy-to-let mortgages, we believe there is still a strong market for buy-to-let advice and lending, so it’s important that both advisers and their clients know we too are in this for the long haul, and have a commitment to both them and this market.
