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July, 2022
Rental yields holding steady across England and Wales

Despite a slight dip in annual rental yields, down from 6.1% a year ago to 5.5%, the drop is only 0.2% on the previous three-month period, Q1 2022, when the yield was 5.7%, according to new data from Fleet Mortgages.

Fleet's data, which covers all areas of England and Wales, found that the yearly trend across all regions was down with every area of England & Wales seeing a drop in rental yields of between 0.1% and 0.9%.

However, a more recent quarterly comparison with Q1 2022 shows that two regions – Wales and the East Midlands – have seen rental yields increase, three regions – the North West, West Midlands, and the South West – have seen no change, with the other five regions showing drops of 0.6% and below.

It is the three Northern regions – the North East, Yorkshire & Humberside, and the North West – which continued to see the highest levels of rental yields. The North East of England has the top rental yield regional figure for the eighth consecutive quarter, although the yield did slip slightly from 8.7% in the last quarter to 8.3% now.

Wales saw a 0.6% quarterly increase in rental yield and the East Midlands moved up by 0.3%. Fleet said that all those regions running at rental yield figures higher than the England & Wales average were doing so because of the ongoing strength of tenant demand in those areas compared to the level of supply available.

The lender said it was continuing to see this strength in key town and city centres, with hotspots such as Liverpool, Manchester, Sheffield, Bristol and Cardiff.

Fleet said that while rental yields had dropped off the recent highs of the last 12 months, it was apparent that strong tenant demand – coupled with a relatively low level of supply – was likely to keep yields at good levels across most of the regions in which it lends.

It said landlords were keen to add to portfolios having secured capital increases on existing properties over the last two years, and it anticipated a positive buy-to-let re-mortgage market throughout the rest of 2022.

However, the ability of landlords to add much-needed supply to the private rental sector would be predicated on a number of factors, not least property availability, but also an increase in the cost of mortgage borrowing with product pricing having increased over the last few months.

Fleet said it continued to anticipate that rates would rise further, particularly as lenders sought to manage resources and service levels in a highly-competitive marketplace.

Steve Cox, Chief Commercial Officer at Fleet Mortgages, commented: “This is, without doubt, a very interesting period for landlords, lenders, and the wider private rental sector, as we seek to marry up a number of ongoing issues which are all having an impact.

“The positive news is that, as our Rental Barometer shows, yields are holding up well, and while we have seen a drop-off since the highs of last year, in general, there has been consistency across most regions on a quarterly basis.

“That clearly has much to do with strong tenant demand, married up with relatively low levels of supply. Properties are highly sought after, and rents are strong due to the scarcity value of quality homes. Our anticipation is that, in most regions of the UK, yields will stay pretty constant, especially while this supply-demand imbalance is in place.

“We know that many landlords would like to re-mortgage existing properties in order to fund new purchases, however, there are two areas to consider here. First is the increase in buy-to-let mortgage product pricing which has been obvious in the last couple of months, and secondly is a lack of supply to purchase.

“Both might well hold landlords back from acting right now, however, we do anticipate that 2022 will see strong levels of re-mortgaging throughout the rest of the year, and as lenders get on top of their current service issues, we will see a return to stability, and pricing, for buy-to-let mortgages, although this might not be visible until the early part of next year.

“There may also be an element of landlords holding off any purchase ambitions as they await to see how house prices in the UK react to the double-whammy of the cost of living increases and more expensive mortgages. A number of economists anticipate this will see house prices dropping off their highs, which might present a better opportunity for acquisitive landlords.

“Overall, for existing landlords, the rental yield figures remain a strong source of comfort, and while we believe the level of demand for PRS properties will dip, there is likely to still be enough – especially compared to property choice – to ensure they maintain good levels throughout the rest of 2022.”