Rental yields hold firm despite market uncertainty

Rental yields have risen, but periods of political volatility have caused problems in the mortgage market, new figures reveal.

Fleet Mortgages’ Rental Barometer found that while six out of 10 regions across England and Wales recorded a quarterly decline in yields, the average rental yield across England and Wales increased by 0.3% year-on-year to 7.8%.

The firm predicts that with inflation remaining steady it expects the market will remain stable.

North East offers highest rental yields

According to the North East continues to offer the highest rental yields, with annual yields up 0.5%. However, on a quarterly basis, the region also recorded a 0.6% fall, taking the average yield to 9.2%.

The North West has moved into second place with an average rental yield of 8.8%. Six regions now boast average yields above 8%: the North East, North West, Yorkshire & Humberside, Wales, and the East and West Midlands.

Higher-yielding regions across the North and Midlands continue to outperform the South, while Wales and the South West recorded annual declines.

However, most regions experienced a quarterly fall in average yields. The only exceptions were the East Midlands and Greater London, where yields increased by 0.6% and 0.3% respectively, while the North West also saw an increase

Greater stability returning

Steve Cox, chief commercial officer at Fleet Mortgages, explains that stability is returning to the market.

He said: “Q2 for the buy-to-let, and wider, mortgage market has effectively been a ‘flip reverse’ of Q1. It began with considerable uncertainty as financial markets reacted to events in the Middle East, meaning funding costs increased and lenders had to adjust pricing accordingly.

“However, the latter weeks of June in particular have been much more encouraging, with greater stability returning, swap rates easing and lenders like ourselves once again able to compete through lower rates and a broader range of products.

“While it’s important not to assume this calmer environment will continue indefinitely, the market is undoubtedly ending the quarter in a stronger position than many expected a few months ago. The MPC has held the Bank Base Rate, and inflation looks, to some extent, to have been contained, while advisers have a much-improved range of options for their landlord-borrower clients.”

Portfolio landlords continue to expand

The data also reveals the share of applications received from landlords with six-14 properties grew from 26% in Q1 to 30% in Q2, while landlords with 15 or more properties accounted for 26% of applications.

Mr Cox says the figures show professional landlords remain active.

He added: “Purchase activity has picked up, portfolio landlords continue to expand where opportunities exist and limited company borrowing remains the preferred route for most investors. Those are all positive indicators for the underlying strength of the buy-to-let sector.

“Periods of volatility have become a feature of the mortgage market rather than an exception, and advisers and landlords increasingly understand this ‘new normal’. The important point is that when conditions improve, as they have during the latter part of this quarter, the market is able to respond quickly, providing borrowers with greater choice and improved pricing.

“That should give confidence as we move into the second half of the year, even if we continue to expect markets to remain sensitive to wider economic, UK political and geopolitical events.”