Landlord optimism grows in Q2 but tenant demand concern remains

In quarter two, landlords’ confidence in the performance of rental yields, capital gains and their own profitability increased year-on-year.

Views on the outlook of the UK economy and tenant demand were bleak, however, with just seven per cent of landlords feeling optimistic about the country’s economic prospects and 14 per cent saying tenant demand had been impacted, an all time low for the study.

Despite this, quarter two’s report painted a more optimistic view than the previous three months when all five indicators reflected confidence at a 14-year low.

But some regions are faring better than others with above average rental yields and less voids boosting landlords’ mood.

Rental yields and sales

The average UK rental yield  in quarter two is 5.8 per cent.

Six regions out of ten achieved rental yields higher than the national average in Q2 with the North West and Yorkshire and Humber recording yields of 6.5 and 6.3 respectively.

Of the four regions below the national average, central and outer London fared the worst with yields of five and 5.1 respectively.

The East Midlands saw the greatest percentage of landlords selling properties in the last three months, at 11 per cent.

Meanwhile the North East and East Midlands recorded nine per cent of landlords buying properties in the last three months.

Yorkshire and Humber landlords, who are more upbeat on average across all five indicators, were looking to grow their portfolios with nine per cent of investors buying and only one per cent selling properties.

Glass half empty

Central London and North East landlords remained pessimistic about the outlook for yields, profitability, tenant demand, the economy and for the first time in central London, capital gains.

Outer London landlords had a similarly dim outlook of the market, but were more optimistic about the opportunity for their property values to increase.

According to TMW’s analysis, the low level of confidence in the capital is likely driven by the one of the lowest reported levels of increasing tenant demand, lowest profitability and highest incidence of void periods experienced of all regions.

On average 33 per cent of landlords said they had experienced rental voids in the last three months but in central London this increased to 42 per cent.

The capital was closely followed by the West Midlands landlords where 41 per cent of landlords had suffered voids.

TMW said this is likely to be due to landlords in the West Midlands having larger than average portfolios and therefore being more exposed to the issue of empty properties.

Those with a rosier view of the private rented sector have properties based in the North West and East and West Midlands, despite all three regions experiencing a higher than average amount of voids.

The North West has the highest confidence across the UK in the prospects for their own letting business, underpinned by achieving the highest rental yield of 6.5 per cent out of all regions for the second consecutive quarter.