RENTAL YIELD INCREASES SLOW BUT YEARLY IMPROVEMENT STILL SEEN ACROSS ALL REGIONS OF ENGLAND AND WALES - FLEET MORTGAGES’ RENTAL BAROMETER

03 October 2024

Fleet Mortgages, the buy-to-let specialist lender, has today (3rd October 2024) released the latest iteration of its Buy-to-Let Rental Barometer covering Q3 2024 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 2024 and Q3 2023. 

Average Rental Yields y/y change

The total average yield for England and Wales is 7.2%, showing an annual increase again, up by 0.3% on the same quarter in 2023. However, it is down by 0.4% quarter-on-quarter.

Fleet said rental yields remain solid, with once again every region across England and Wales showing an annual increase, however the year-on-year percentage increases have slowed, while almost all regions showed a quarterly dip in rental yield figures.

The lender puts this down to a stabilisation of rental levels in most areas of the country after a long period when rents continued to rise significantly. Of the 10 regions, only the East Midlands maintained its rental yield figure from the previous quarter - 7.5% - and while Yorkshire & Humberside was up slightly by 0.1%, all others saw a dip.

The North East continues to lead the average rental yield table at 9.7% with the North West at 8% in second place. Both were in the same position in the last Rental Barometer although there has been movement below this. Yorkshire & Humberside moves up to third place from fifth, the East Midlands moves up to fifth from sixth, while Wales drops to sixth from third.

Notably, Greater London is not alone at the bottom of the rental yield table for the first time - it and East Anglia have an average yield of 5.9% while both the South West and South East have 6.1%. The clear North-South divide from more recent iterations remains, albeit the gap between the regions is closing.

When it comes to average monthly rent per property, the highest remains in Greater London, up from £2,024 to £2,134, followed by the South East at £1,572; North East regional properties continue to remain the most affordable, with the monthly price of an average property falling quarter-on-quarter from £768 to £702.

Fleet said the maintenance of strong rental yields continued to be a positive for landlord borrowers, particularly against a backdrop of falling mortgage rates.

It added that, while existing landlords were waiting to hear what the Budget had in store for them before making further investment decisions - particularly in terms of adding to portfolios - 10% of its applications came from first-time landlords.

The Rental Barometer also includes data covering average rates, loan sizes, and purchase/remortgage split figures.

Comparing the third and second quarters of 2024, Fleet’s product pricing for both two- and five-year fixed-rates decreased, from 5.05% to 5.02% for the former, and 5.69% to 5.24% for the latter. Given recent pricing movements, Fleet said it anticipated this would fall further in Q4. Peer group average rates were 5.34% for two-year fixed-rates and 5.35% for five-year.

Fleet’s average loan size increased significantly on the previous quarter, up once again to £196k - the same figure as Q1 this year - from £171k in quarter two, and the average rental cover at loan origination was 176%.

Applications for property purchases in Q3 2024 also continued to increase, albeit slightly, up from 42% last quarter to 43%, while 77% of all applications through the quarter were from limited company borrowers - down from 80% - while private investor borrower applications were up from 20% to 23%.

Steve Cox, Chief Commercial Officer at Fleet Mortgages, commented:

“As can be seen from this latest iteration of the Rental Barometer, yearly rental yields across every single region we lend within have all increased, albeit as expected, by smaller amounts and at slower rates, suggesting we are now past the point of the significant increases in rents we saw during the previous 12-18 months.

“It’s our belief that the demand-supply disparity is not as acute as it was previously, however many landlord borrowers are waiting to see what the Budget holds for them, and whether any further increase in taxation or costs are going to need to be faced, and paid for.

“Regionally, it is those in the North of the country that continue to top our Rental Yield table but we have seen a shrinkage in the difference between North and South and while regions such as Greater London and the South East continue to show an uplift in their average monthly rent per property, in the North East, for example, this has actually dropped from the last quarter.

“It’s still a solid and stable picture, helped no doubt by the fall in lending costs, which clearly makes affordability easier to achieve, albeit we are still a little way off the rates available in the pre-‘Mini Budget’ era.

“However, one of the real positives over the last few months has been the rate environment and its continued downward trend, clearly helped by the Bank of England’s decision to cut Bank Base Rate in August, the anticipation of more cuts to come and the falling swap rates over the same period.

“At Fleet this combination has allowed us to cut rates further, as is reflected in our average two- and five-year fixed-rates coming down again, plus we’ve also been able to reintroduce and launch new products back to market, particularly our EPC A-C products which offer rate discounts for those purchasing or remortgaging properties with these higher EPC levels.

“In light of the speculation around potential CGT hikes for those selling additional property as individuals, it will be interesting to see if the percentage of our limited company applications continues to increase. This quarter they have actually gone down slightly but our belief is that more and more landlord borrowers are going to be purchasing within these corporate structures, especially if they can avoid any CGT impact when they sell.

“The next few months promises to be very interesting indeed, especially when we learn the details of the Budget and how it is going to impact landlords.”

Fleet Mortgages’ product guide and full list of lending criteria is available to view by visiting its website at: www.fleetmortgages.co.uk