North-South divide in rental yields evident in latest BTL report

Almost all regions show positive year-on-year increase in rental yield

North-South divide in rental yields evident in latest BTL report

There was a notable North and South divide in rental yields, with Northern regions outperforming their Southern counterparts in the latest edition of Fleet Mortgages’ Buy-to-Let Rental Barometer.

The report, which analyses Q1 2024 rental yields across England and Wales, showed that overall average rental yield in England and Wales had a 0.4% year-on-year increase, reaching 7.1%, which also represents a rise from the 6.9% yield reported in Q4 2023.

Except for the North East, which experienced a slight decrease, all regions recorded annual yield growth. Despite a drop, the North East still secured the second position with an average yield of 8.4%. Yorkshire and Humberside claimed the top spot and displaced the North East.

Wales, previously the top region in the last quarter, has dropped to fifth place. Notably, the West Midlands, East Anglia, and Greater London all reported significant yield increases. Fleet Mortgages attributes these increases to a tight supply and robust tenant demand.

The report also includes data on average rates, loan sizes, and the purchase-remortgage split. Fleet Mortgages observed a decrease in product pricing, with average rates for two- and five-year fixes falling to 5.24% and 5.32%, respectively. The average loan size rose to £183,000, and the rental cover at loan origination increased slightly.

Fleet Mortgages also reported a rise in mortgages for purchase business, indicating a shift in borrower types, with a balance between private investors and limited companies.

“This iteration of our Rental Barometer returns to the status quo, with the northern regions once again making up the top three on the table, after Wales had briefly headed the list for the last quarter of 2023,” said Steve Cox (pictured), chief commercial officer at Fleet Mortgages.

“It’s positive to see virtually all regions within which Fleet lends in England and Wales showing a positive year-on-year increase in rental yield, with Yorkshire and Humberside showing a significant 1.3% increase, which means it now tops the table with a very strong 8.5%.

“Indeed, the table itself mirrors the geography of England and Wales, with the lower rental yields for the Southern regions, which you might expect given, on average, the greater capital values of properties ‘down South’.”

Cox also highlighted the apparent disconnect between supply and demand in the private rental sector, saying that with significant increases in population numbers, the continued difficulty in purchasing a home, and a lack of action on the government’s part to improve housing supply, it is likely that ongoing and strong yield will continue throughout the rest of 2024.

“Clearly, landlord borrowers had a difficult 2023 in terms of mortgage affordability and costs, but there is further positive news in terms of falling mortgage product rates, and the anticipation is we’ll see this continue to track downwards,” he said.

“There is an appetite to add to portfolios where the numbers add up, and we’ve seen our own purchase business ticking up quarter-on-quarter. Again, our assumption is that a falling rate environment will give landlords more confidence and money to be able to buy, and while we don’t see remortgage-purchase business parity being on the cards anytime soon, we do think we’ll see more purchasing as a percentage of our business through the rest of 2024.”

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