Fleet Mortgages has released the latest iteration of its Buy-to-Let Rental Barometer covering Q1 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 Q1 2023 and Q1 2022.
Across England and Wales the Barometer shows both an annual and quarterly increase in rental yields, up from 6% a year ago, and 6.4% in the last quarter of 2022 to 6.5% now. This is the highest on record since the Rental Barometer was first published.
Fleet said increased yields across all regions reflected both rental stock continuing to be in short supply, very high tenant demand and house price levels easing over the last six months particularly.
As a result, every single region had seen both an annual and quarterly increase in rental yield, except the North West and the South West which had seen quarterly drops of 0.1% and 0.2% respectively.
The North East of England continues to retain its top regional rental yield figure for the eleventh consecutive quarter, up 0.6% on the last quarter, while Yorkshire and Humberside had jumped into second place with a yield of 7.7%. Wales was the significant mover, up 1.1% annually and 0.6% quarter-on-quarter.
In this iteration of the Rental Barometer, Fleet has also outlined a raft of new data covering average rates, loan sizes, landlord portfolio numbers and average monthly rental income by region.
Fleet’s average five-year fixed-rate product rate has dropped from 5.81% in the last quarter of 2022, down to 5.35%. The lender said this was down to swap rates continuing to track lower and its own strong appetite to lend to landlord borrowers.
Fleet’s average loan size was now £197k, up from £172k in the previous quarter, with the average rental cover at loan origination up from 169% to 181%. Mortgages for purchase business had dropped slightly from 43% of Fleet’s total lending to 37%, while the number of investment properties owned by landlord borrowers remained at 11, showing a customer base of predominantly larger portfolio players.
Average rental income across the regions where Fleet lends was now up at £1,345 per month, from £1,256 in the last quarter of 2022. This was an annual increase of £135 since the first quarter of last year.
Rental incomes ranged from an average of £660 per month in the North East to £2,049 in Greater London. Fleet said that while rental yields were increasing in every region, it had not witnessed an increase in rents in all – for example, in the North East while yields remained above 8%, rents had decreased from £681 last quarter, with similar trends in both the East Midlands and the South East.
According to the Barometer, gross rental income now exceeded £1,000 in seven out of 10 regions, whereas a year ago, this was true for only five regions.
Steve Cox, chief commercial officer at Fleet Mortgages, said: “We are very pleased to deliver this latest version of our Rental Barometer which this quarter contains a raft of new data and information on what is happening in the private rental sector and how the buy-to-let mortgage market is shifting in order to accommodate the changing needs and circumstances of landlord borrowers.
“There is perhaps no surprise to see rental yield has increased in every single region in which Fleet lends in England and Wales over the last year, given a combination of factors including lower supply of property, increased tenant demand, house prices falling and product rates rising.
“Those regions which have topped the ‘charts’ for some time, continue to perform well but it is also positive to see all other regions showing stronger yields and again it is also not surprising to see rental incomes – on the whole – also on the increase.
“In terms of mortgage product choice, rates and the like, the ‘Mini Budget’ still has a lot to answer for, and landlord borrowers are going to be dealing with its consequences for a number of years to come.
“What we initially saw was a move towards tracker products, but this has fallen significantly over the last six months, and instead there has been a focus on longer-term products, particularly those with higher fees and lower rates, which allow borrowers to get over some of the higher affordability hurdles that have become prevalent.
“Our feeling is that the future is likely to move back towards a return for two- and five-year product demand, and if swap rates continue to move lower this will be cemented in the market, with any ongoing movement providing lenders with more pricing options, leading to better affordability for longer fixed-rate products.
“Overall, the market continues to predominantly be the preserve of portfolio landlords, particularly as those with only one or two properties struggle to stay profitable given the rise in mortgage costs. Purchase activity has slipped slightly but is still over a third of our business and this is coming from portfolio players continuing to purchase residential property with a long-term investment horizon. We do not see that tailing off any time soon.”
