I’ll be the first to admit that when we ran our latest regular quarterly data on rental yields for all regions in England & Wales, and I saw a sea of red in the year-on-year change column, it wasn’t the most positive picture I’ve ever been presented with.
However, as with all statistics and data it’s all relative, and if a week is a long time in politics in the UK, then a year is certainly a long time in the private rental and buy-to-let sectors.
A closer analysis of our Rental Barometer for the second quarter of 2022 does indeed show that rental yields had dipped across all regions of England and Wales in which Fleet lends. This however is not quite the signal that some might believe it to be.
For a start, the economic environment as we know is a lot different this year to 2021. Interest rate rises had yet to get going at all, we were still in a stamp duty holiday period, inflation was nowhere near the levels of recent times – I could go on.
What we still have now, that we also had then however, was a relatively low level of supply for tenants to choose from; indeed you might justifiably argue that supply is even less now.
For those reasons, and more, it appears to me that a yearly comparison – which, to be fair, only shows very small drops in rental yield, with the highest being 0.9% in East Anglia – fails to capture the real picture of what the PRS is like right now in the middle of a very hot 2022 summer.
For a start, when we make a shorter-term comparison – Q2 2022 with Q1 2022 – we can see rental yields in two regions – Wales and the West Midlands – actually increased, while three – the North West, West Midlands, and the South West – showed no changed, and a further five saw slight drops of 0.6% or less.
Most landlords would I think agree that tenant demand is still very strong in almost all regions of the country, and given the lack of supply they have to choose from, then rents have continued to rise in a large number of areas and across a number of property types.
Properties in the North East are still posting rental yields above 8%, it’s above 7% in Yorkshire and Humberside, and 5% and above across all regions except East Anglia and Greater London.
There’s no questioning that these are figures slightly off the most recent highs, but again let’s look at the current economic environment many tenants are having to deal with, and it will not take a genius to work at that, for example, the increases in the cost of living were going to have an impact in our sector as much as they would in owner-occupation.
There will be many landlords who view the current yield they are able to secure as healthy, although again they will be considering the increased cost of finance – unless they have a long-term fix which many do – and other impacts to profitability not least the growing cost of being a landlord, including those EPC requirements, but also a growth in local licensing schemes, and for many landlords who include bills within their rents, the increased cost of energy and the like.
It all adds up, and of course, rental yield plays a vital role in order to maintain activity in a sector which has been a political football for a long time, and judging by the pronouncements coming from the group of Conservative politicians who want to be the next Prime Minister, will continue to be kicked around as such.
This, we acknowledge, creates an enhanced degree of difficulty for advisers in dealing with landlord clients. No-one wants to see a continuation of the current situation whereby service and resource issues are forcing lenders to raise pricing in order to control activity. We have not been immune from this, and it is clearly not an ideal situation for advisers or their clients.
However, while 2022 might well continue to play out in a similar vein, there is still considerable business to be written, not least a significant amount of remortgage activity, plus landlords still want to buy if they can square that demand-supply circle.
It probably means a rather topsy-turvy rest of the year, but with enough positives along the way, to ensure business activity and transactions are not unduly impacted. And, in that vein, the longer-term future does have a more rosy hue to it.
We certainly believe issues will be ironed out and we can return to a greater degree of normality in terms of our product offering, pricing and service. And, within all of this, the need for advice and support for consumers is not going away. We all need to keep plugging away and support each other, and by doing so we’ll get to where we want to be in a much shorter timescale. Of that I am convinced.
Steve Cox is chief commercial officer at Fleet Mortgages