SIGNIFICANT INCREASE IN ANNUAL RENTAL YIELDS ACROSS ENGLAND AND WALES - FLEET MORTGAGES’ RENTAL BAROMETER
18 October 2023
Fleet Mortgages, the buy-to-let specialist lender, has today (18th October 2023) released the latest iteration of its Buy-to-Let Rental Barometer covering Q3 2023 rental yields across England and Wales.
The regional snapshot covers all areas of England and Wales in which Fleet lends and highlights the rental yield changes that have occurred in each of those regions. In this iteration, the yearly comparison is between Q3 2023 and Q3 2022.
Average Rental Yields y/y change
Region 2022 Q3 2023 Q3
North East 8.3% 9.1% 0.8%
North West 7.0% 7.6% 0.6%
West Midlands 6.2% 7.5% 1.3%
Yorkshire and Humberside 7.1% 7.2% 0.1%
Wales 6.7% 6.8% 0.1%
East Anglia 5.2% 6.5% 1.3%
South West 5.5% 6.4% 0.9%
South East 5.2% 6.2% 1.0%
East Midlands 6.0% 6.1% 0.1%
Greater London 4.9% 5.6% 0.7%
England & Wales (Total) 5.9% 6.9% 1.0%
Across all regions of England and Wales the Barometer shows an annual increase in rental yields for the third quarter in a row, with the total yield for both countries up by 1% to 6.9% on the same quarter in 2022. This is also up 0.6% on the Q2 2023 figure of 6.3%.
Fleet said the same underlying factors continued to drive rental yields, namely an increased demand from tenants, a shortage of available supply, plus a continued dip in house price levels.
For the second quarter in a row, annual yields had increased across every single region, with a 1%-plus increase in three regions – West Midlands, East Anglia and the South East.
Quarter-on-quarter changes were positive in the North East, Yorkshire & Humberside, West Midlands, South West, East Anglia, South East and Greater London; the only quarter-on-quarter dips were seen in the North West and Wales.
The North East of England continues to retain its top regional rental yield figure for the thirteenth consecutive quarter, posting a further improved 9.1% yield. It is East Anglia and the West Midlands however which saw the biggest percentage jump, up 1.3% on the same quarter last year.
This new version of the Rental Barometer continues to include data covering average rates, loan sizes, landlord portfolio numbers and average monthly rental income by region.
With a softening in swap rates, and the decision by the MPC not to raise Bank Base Rate, Fleet’s product pricing dipped in Q3 this year, with the average rate across its range having fallen from 6.09% in Q2 to 5.74% in Q3.
Fleet’s average loan size increased on the previous quarter, up to £187k from £174k, with the average rental cover at loan origination up from 167% to 177%.
Mortgages for purchase business continued to drop from 32% of Fleet’s total lending to 30% reflecting a diminished level of acquisition, while the number of investment properties owned by landlord borrowers stayed stable at 12.
The average monthly rent across the regions where Fleet lends was slightly down from £1,380 per month in Q2 to £1,346 per month in this quarter. Rental prices ranged from an average of £678 per month in the North East to £2,457 in Greater London.
Regions in the North – North East, North West, and Yorkshire & Humberside – had all seen a slight drop in rental pricing per month, while all other regions showed an increase on the previous quarter.
Steve Cox, Chief Commercial Officer at Fleet Mortgages, commented:
“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 1% increase in yield for England & Wales as a whole.
“With house prices having dipped across the country, the yield figures are strengthening, while property availability compared to tenant demand is pushing monthly rents up in the vast majority of regions, although the Northern regions have seen a dip this month.
“The outlook, at least for the short-term, looks likely to be very similar, particularly in regions like Greater London, the South West and the South East where a shortage of stock is inevitably leading to higher rental prices.
“While portfolio landlords in particular continue to look for opportunities to purchase more property, those with a smaller private rental sector investment are finding it difficult to make the numbers work. It’s why the percentage of purchase business we conducted in Q3 dipped again to 30% from 32% in the last quarter.
“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 5% rate, then we anticipate business levels will improve as landlords are better able to meet the affordability criteria that comes with today’s marketplace.”
Fleet Mortgages’ product guide and full list of lending criteria is available to view by visiting its website at: www.fleetmortgages.co.uk
