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Average rental yield ticks up but North-South divide clear

  • 10/04/2024
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Average rental yield ticks up but North-South divide clear
The average rental yield in England and Wales rose 0.4% year-on-year (YOY) to 7.1%, but there is a stark North-South divide, a report has found.

According to Fleet Mortgages’ Rental Barometer, every region barring the North East reported an annual yield increase. The North East’s average rental yield fell by 0.4% to 8.4%.

Yorkshire and the Humber reported the largest yearly increase of 1.4% to an average rental yield of 8.5%.

This was followed by the North West, West Midlands, East Anglia and Greater Anglia with a 0.6% increase.

Digging into the figures, the areas with the best average rental yields were Yorkshire and the Humber, the North East and the North West at 8.5%, 8.4% and 7.9% respectively.

At the bottom of the list was Greater London at 5.9%, the South East at 6.1% and the South West at 6.2%.

Wales was in the middle of the table at 7.4%, a rise of 0.4% compared to the same period last year.

In the first quarter of this year, Fleet said that its product pricing continued to fall as expected, with the average rate for two-year fixes standing at 5.24% and 5.32% for five-year fixes. This is a fall from 5.63% and 5.7% in the previous quarter.

Its average loan size grew to £183,000, up from £175,000 in the prior quarter, and average rental cover at loan origination was also up from 170% to 172%.

Purchase business accounted for 33% of Fleet’s total lending, with borrower type splitting out at 33% private investors and 67% limited companies.


A return to the ‘status quo’

Steve Cox, chief commercial officer (CCO) at Fleet Mortgages, said: “In a sense, this iteration of our Rental Barometer returns to the status quo, with the Northern regions once again making up the top three on the table, after Wales had briefly headed the list for the last quarter of 2023.

“It’s positive to see virtually all regions within which Fleet lends in England and Wales showing a positive year-on-year increase in rental yield, with Yorkshire and Humberside showing a significant 1.3% increase, which means it now tops the table with a very strong 8.5%.

“Indeed, the table itself mirrors the geography of England and Wales, with the lower rental yields for the Southern regions, which you might expect given, on average, the greater capital values of properties ‘down South’.”

He noted that what is clear is that there is still a “disconnect between supply and demand” in the private rental sector, and with a significant popular rise, continued challenge in buying a home and lack of government action to up housing supply, then it was likely there would be “ongoing and strong yield throughout the rest of 2024″.

“Clearly, landlord borrowers had a difficult 2023 in terms of mortgage affordability and costs, but there is further positive news in terms of falling mortgage product rates, and the anticipation is we’ll see this continue to track downwards. Our intention at Fleet, as always, is to get our range close to the 5% mark, as we’re acutely aware of what this means for borrowers and their ability to both purchase new properties, but to also meet affordability and refinance.

“There is an appetite to add to portfolios where the numbers add up, and we’ve seen our own purchase business ticking up quarter-on-quarter. Again, our assumption is that a falling rate environment will give landlords more confidence and money to be able to buy, and while we don’t see remortgage/purchase business parity being on the cards anytime soon, we do think we’ll see more purchasing as a percentage of our business through the rest of 2024,” he added.

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