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Average rental yields in England and Wales contract to 5.4 per cent – Fleet Mortgages

  • 19/10/2022
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Average rental yields in England and Wales contract to 5.4 per cent – Fleet Mortgages
Average rental yields in England and Wales have fallen by 0.8 per cent in Q3 compared to the same period last year, contracting in all regions bar the South West and Wales.

According to Fleet Mortgages Buy-to-Let Rental Barometer report, average rental yields in England and Wales for Q3 came to 5.4 per cent, down from 6.2 per cent last year.

Compared to the quarter immediately prior, rental yield in England and Wales only fell by 0.1 per cent.

Wales and South West both reported an uptick between Q3 last year and Q3 this year, increasing by 0.2 per cent and 0.3 per cent to 6.8 per cent and 5.6 per cent respectively.


North East reports highest rental yields

The highest rental yields were in the North East at 7.2 per cent, which is a fall of 0.8 per cent compared to last year. This is the ninth consecutive quarter it has reported highest rental yield.

This was followed by Wales at 6.8 per cent and Yorkshire and Humberside and North West at 6.5 per cent apiece.

Yorkshire and Humberside reported a fall of 0.6 per cent and the North West fell by 1.2 per cent compared to the same period last year.

Greater London had the lowest rental yield at 4.6 per cent, which is down by 0.2 per cent compared to Q3 but up from 4.4 per cent in Q2 this year.

This was followed by South East at five per cent, a decrease of 0.4 per cent compared to the same period last year and East Anglia which fell by 0.5 per cent to 5.1 per cent.


Landlord exits likely amid rising rates

Fleet said regions that had seen a quarterly increase was due to an acute shortage of rental accommodation.

The lender added that recent increases in the cost of mortgage finance could see landlords exiting the sector, which could exacerbate shortages.

It added that recent turmoil with swap rates had given lenders no choice but to increase product rates and consequent increases in buy-to-let rates would impact rental yields, and it was “unlikely to be able to recoup all of these greater finance costs via an increase in rents”.

Fleet continued that due to increased interest rates, it expected demand for residential property to fall and landlord would wait and see before making investment decisions, despite growing tenant demand.


Market turmoil will have short term dampening effect

Steve Cox, chief commercial officer at Fleet Mortgages, said that it was “clearly positive” that several regions had reported a quarter-on-quarter increase in yields and overall yields were only slightly down on Q2.

Cox said that different interest rate environment, temporary product withdrawals after the mini Budget and increased pricing were all factors that would impact future rental yields.

“It’s an obvious point to make that the cost of buy-to-let mortgages has increased, and landlords will need to factor that into their profitability and what they might charge for rent in order to cover these increased costs.

“This is not an easy task given the cost of living crisis and there is a need to marry up the need of the landlord to cover the mortgage, with the struggles being faced by many tenants,” he explained.

He said that, in the short term, this would have a dampening effect on purchase activity, and although many portfolio and professional landlords wanted to add to their portfolio, the cost of funding had “increased significantly”. He said the increase was also notable for existing borrowers looking to remortgage or do a product transfer.

Cox continued: “Our outlook is that rates will remain high for the short term although it is our hope that recent attempts to calm the markets will provide greater certainty to lenders who will be able to return products to market, particularly in areas such as two-year fixed rates which have, by necessity, seen a considerable fall in number.”

He said that overall the buy-to-let market was still an “attractive, long-term investment opportunity”, and tenant demand would continue meaning demand for rental supply would remain high. This would lead to more competition, better rates and stronger yields further down the line.

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