Fleet Mortgages’ quarterly Rental Barometer showed that average yields rose by 0.7% since last year and 0.4% since last quarter to reach 8.1%.
The headline figure obscured regional differences, however, with the North East of England the top-yielding region at 9.8% and London the lowest yielding region at 6.1%.
Six regions now hold an average rental yield above 8% – Yorkshire and the Humber, the West Midlands, the North West, Wales and the East Midlands make up the other five.
Steve Cox (pictured), chief commercial officer at Fleet Mortgages, said rental yields would be affected by volatility caused by geopolitical events this spring, despite the stability shown in this data.
He said: “It is important to stress that much of this data reflects the first two months of the quarter, when conditions were far more stable and pricing was easing. The market we are operating in today looks very different and continues to be extremely volatile for obvious reasons.
“The impact of global events, particularly in the Middle East, has driven a sharp increase in swap rates, leading to product withdrawals and higher pricing across the market. This is likely to have a much greater impact on activity as we move through Q2, especially on the purchase side.”
Larger portfolios reign
The barometer also showed an increase in average loan size and increased activity from those with larger portfolio. The proportion of landlords with 15 or more properties increased from 25% to 30% during the quarter, and over 63% of applications came from those holding four or more properties.
Cox said the market was dominated by limited company borrowing, highlighting how landlords are increasingly professionalising their operations in order to benefit from tax efficiencies.
This may also reflect the number of smaller landlords leaving the market due to concerns over extra red tape from the Renters’ Rights Act that comes in next month.
Market remains strong
Despite volatility and uncertainty, Cox said the figures show that the fundamentals of the UK private rental sector remain “incredibly strong”.
He added: “We are continuing to see landlords looking to grow their portfolios, larger portfolio operators increasing their presence, and a sustained shift towards limited company borrowing.
“So while the market backdrop has clearly shifted in recent weeks, the combination of rising yields, strong tenant demand and ongoing investor appetite means buy to let remains well-supported, even as it adjusts to a more uncertain financing environment.”
