According to Fleet Mortgages’ rental barometer for Q3 this year, showed that the largest improvements in rental yields were in East Anglia, which increased 1.3 per cent year-on-year to 6.5 per cent.
The West Midlands also went up by 1.3 per cent to 7.5 per cent over the same period.
Rental yields in the South East rose by one per cent year-on-year to 6.2 per cent and this was followed by the South West which went up by 0.9 per cent to 6.4 per cent in the same timeframe.
Yorkshire and the Humberside, Wales and East Midlands only rose by 0.1 per cent year-on-year to 7.2 per cent, 6.8 per cent and 6.1 per cent respectively.
The average rental yield overall is 6.9 per cent and the average year-on-year change in rental yields is one per cent.
Looking at rental yields more closely the North East had the highest rental yield at 9.1 per cent, followed by 7.6 per cent in the North West and 7.5 per cent in West Midlands.
Fleet said that the same underlying factors continue to drive rental yields such as increased demand from tenants, shortage of supply and a fall in house prices.
The lender said that average product pricing in its range had fallen from 6.09 per cent in Q2 to 5.74 per cent in Q3, which it said was due to a softening of swap rates as the Bank of England kept the base rate stable.
Fleet’s average loan size has gone up from £174,000 in Q2 to £187,000 in Q3 and average rental cover at loan origination has jumped from 167 per cent in to 177 per cent.
Purchase mortgage purchases fell from 32 per cent of its total lending to 30 per cent, and the number of investment properties held by portfolio landlords staid static at 12.
The average monthly rent across the regions where Fleet lends decreased from £1,380 per month in Q2 to £1,346 per month in Q3.
Rental prices ranged from an average of £678 per month in the North East to £2,457 in Greater London.
Steve Cox (pictured), chief commercial officer at Fleet Mortgages, said: “Many of the themes that have been evident in the buy-to-let and private rental sector throughout 2023 continue to strengthen, particularly when it comes to demand for purchase versus remortgage activity, meeting affordability challenges, tenant demand, property supply, and the overall impact on yields and rents.
“Unsurprisingly, when you add of all this together, we find annual rental yields having grown in every single region compared to last year, and this has resulted in a significant one per cent increase in yield for England and Wales as a whole.”
He continued that house prices had fallen across the county leading to improved rental yield, along with strong tenant demand.
Cox said that in the short-term, especially in regions like Greater London, the South West and the South East where stock shortage was more acute, this would inevitably lead to higher rental prices.
He added that portfolio landlords were looking for more opportunities to buy whereas smaller landlords were “finding it difficult to make the numbers work”, which is why purchase figures had fallen slightly.
“Overall, we remain totally committed to this sector and have been able to cut product pricing in recent weeks as swap rates dipped slightly, and the markets were calmed by the Bank of England’s decision not to raise Bank Base Rate at its last meeting.
“More adjustments will be forthcoming if the rate environment continues to be calmer, and if product pricing can move more towards an average five per cent rate, then we anticipate business levels will improve as landlords are better able to meet the affordability criteria that comes with today’s marketplace,” Cox noted.
