According to Fleet Mortgages’ latest buy-to-let rental barometer, quarterly yields in England and Wales have fallen by 0.6 per cent year-on-year to 5.7 per cent in Q1.
However, it said that this was up by 0.1 per cent compared to the prior quarter.
The report continued that all regions, bar the North East, had experienced a slight drop in rental yields year-on-year.
The North West reported the strongest decrease in rental yield, with a one per cent fall to 6.7 per cent in Q1.
This was followed by the East Midlands with a 0.7 per cent decrease to 4.7 per cent and Greater London which depreciated by 0.5 per cent to 4.6 per cent.
All other regions’ rental yields decreased by 0.2 per cent to 0.4 per cent.
The report said that Northern regions had the highest rental yields across England and Wales, with North East coming top for the seventh consecutive quarter at 8.7 per cent.
Yorkshire and the Humber came second at 7.5 per cent and the North West came third at 6.7 per cent.
Fleet said that this was due to increase in demand around “hotspot areas” such as Liverpool, Manchester and Sheffield.
It continued that it expected “strong tenant demand” across England and Wales for the rest of the year, but that this may change going into 2023 as increasing mortgage rates, tightening government policies and pressures on household income could all have an impact.
Fleet said that buy-to-let mortgage rates had risen slightly in Q1 as lenders absorbed increased funding costs to maintain volumes. It added that rates would continue to rise for the rest of the year as lenders would absorb bank and swap rate increases.
Steve Cox, chief commercial officer at Fleet Mortgages, said that in its previous forecast it had expected demand for rental properties to continue to be strong into 2022 and there would be a small increase in mortgage interest rates, and that this had “proven to be the direction of travel for the market”.
He added: “This demand-side strength, coupled with relatively tight supply, means rental yields continue to be strong, and that overall – across England and Wales – we have seen an increase in levels compared to the last quarter of 2021.”
Cox said that on a yearly basis rental yields had dipped slightly but that this “doesn’t tell the whole story by any means” and that there were very “strong figures fuelled by tenant demand” which would likely continue for the rest of the year.
“Looking further ahead, it’s likely that landlords are going to need to cut their cloth accordingly when it comes to setting rents, especially given the large increases in the cost of living that tenants are clearly not immune from and will need to be factored into rent levels,” Cox noted.
He added that property investment “retains its allure as a strong asset class” and the supply of finance from lenders was “very strong with rates still at highly competitive levels”.
“As we move through the year it is likely that rates will inch up though, however there are a wide range of opportunities for all types of landlords, wanting to purchase or refinance all types of rental properties, and that this should help bring much-needed supply into the private rented sector,” Cox said.