According to Fleet Mortgages buy-to-let rental barometer, the average rental yield across England and Wales jumped from 5.6 per cent in the second quarter of last year to 6.3 per cent in Q2 this year.
Wales rental yield has increased by 1.2 per cent on year-on-year to 7.5 per cent and Greater London’s rental yield rose one per cent year-on-year to 5.5 per cent.
The North East’s rental yield grew by 0.8 per cent year-on-year to 8.6 per cent, which was the best average rental yield of any region.
Yorkshire and Humberside had the lowest increase at 0.2 per cent year-on-year to 7.1 per cent, followed by North West and South East which rose by 0.4 per cent to 7.5 per cent and 5.4 per cent respectively.
Fleet Mortgages said increased yields were due to the shortage of rental stock leading to higher rental prices and easing in house price levels.
Rates could fall over next few months
The lender said the fall in inflation earlier this week was already impacting swap rates so there was “potential for rates to fall over the next three-month period”.
The company added that its average loan size was £174,000, down from £197,000 in the previous quarter and rental cover at loan origination was 167 per cent. The latter is down from 181 per cent.
Mortgages for purchase fell from 37 per cent to 32 per cent of the lender’s total lending and the number of investment properties owned by landlords rose slightly from 11 to 12.
The average rental income across the regions where Fleet lends went from £1,319 per month in the previous quarter to £1,353.
Rental incomes ranged from an average of £643 per month in the North East to £2,111 in Greater London.
The report added that gross rental income exceeded £1,000 in six out of 10 regions, whereas a year ago, this was the case for only five regions.
Rental shortage and strong demand fueling rental yields
Steve Cox (pictured), chief commercial officer at Fleet Mortgages, said the second quarter was “eventful” following a more benign first quarter, pointing to “significant increases in product rates” that had a “clear impact across the wider mortgage market”, especially buy to let.
He said the rental barometer showed that the “fundamentals” of the private rented sector were “fairly similar” such as the “lack of property supply, strong ongoing tenant demand, and house prices continuing to ease”.
Cox said this had led every region where Fleet lends in to experience an increase in rental yields, but this was slightly down on the first quarter.
“Rate fluctuations, caused by sticky inflation, clearly had a major impact, most notably in terms of the rates we could offer – which moved upwards – and in terms of both rental cover at the origination of the loan, plus the average loan size, and the percentage of our business which was purchase.
“All have been impacted as landlords, and their advisers, have sought product solutions within a higher interest rate environment, and getting over the affordability hurdle remains a significant challenge for all existing and new landlord borrowers. Hence, why we have seen a growing number of lower rate/higher fee products coming to market,” he noted.
Cox said there were positives, such as strong professional landlord demographic, stronger rents and yields, fall in inflation and swap rates coming off recent highs.
He continued: “I’m hopeful that, if this continues to be the direction of travel, we’ll see product rates reacting to swaps, and we’ll be able offer some keener pricing across our range and to explore bringing back certain product types that we would ordinarily be offering.
“For those that can stay invested and who can make the maths work on their properties, buy-to-let remains a strong investment, and we’ll continue to support advisers and their clients to ensure they can get the finance they require for the long-term health of their portfolios.”
