Fleet Mortgages latest rental barometer added that overall average rental yield has ticked up by 0.1 per cent on the prior quarter.
Average rental yields in Wales have grown by 2.2 per cent year-on-year to 8.9 per cent, with North West and Yorkshire and the Humberside increasing by 1.1 per cent to 8.6 per cent and 8.4 per cent respectively.
The North East, East Midlands and the South West have dipped slightly by 0.2 per cent, 0.1 per cent and 0.3 per cent respectively to 7.8 per cent, 6.3 per cent and six per cent.
Fleet Mortgages said that in all regions of the UK rental yield was being “being driven by demand continuing to outstrip supply, inevitably leading to higher rental prices in most areas”.
The lender added that its average rates had gone down to 5.49 per cent in Q4, a fall from 5.74 per cent in Q3.
The company added that it expected that this would decrease further in the first quarter this year.
Fleet Mortgages’ average loan size has decreased from £187,000 to £175,000 with average rental cover at loan origination dipping from 177 per cent to 170 per cent.
Mortgages for purchase business rose from 30 per cent of its total lending to 32 per cent, which could show a “more benign interest rate environment allowing landlord borrowers to look at adding to portfolios”.
The number of investment properties has staid stable at 12.
Average rental yield ‘strong’
Steve Cox, chief commercial officer at Fleet Mortgages, said that while Q4 had regions where rental yields had gone down, which hadn’t happened in the prior two quarters, the falls were small and total yield had continued to move upwards.
He continued: “That remains a strong rental yield figure, however in other regions – notably Wales, the North West and Yorkshire and Humberside – rental yields have jumped significantly again, reflecting no doubt a continued lack of supply compared to overall tenant demand.
“Through 2024 we might anticipate rents come off these highs a little, but it’s still likely to be the case that the number of prospective tenants wanting property far outweighs its availability.”
Cox said that 2023 was a “challenging year” for landlords but this has started to ease, with purchase lending improving, but it was not expecting a “huge improvement in purchase numbers, albeit lower rates and the ability to meet affordability criteria, will allow some landlords to buy”.
He added that whether purchase lending changes significantly “might have a lot to do with whether the government acts on stamp duty in the March Budget, and whether rates continue to fall as they have done over the last month”.
“Historically, we’ve tended to see more landlords active in the sector when rates are around the five per cent mark, and we’re getting there, so we would not rule out more purchasing, providing landlords can find the property they require – no easy feat in the current market.
“Overall, it has been a much more positive start to the year than we saw in the Spring and Summer of 2023, and while we are not anticipating a huge boost to buy-to-let transactions and lending activity, there is a far greater potential for it than we witnessed for most of last year,” Cox said.
