Rental yields rise across England and Wales amid housing crunch

Rental yields rise across England and Wales amid housing crunch

0:01 AM, 24th July 2023, About 10 months ago 3

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The buy to let market is booming as landlords enjoy higher returns on their properties, according to a new report by Fleet Mortgages.

The lender’s Buy to Let Rental Barometer, which tracks rental yields in different regions of England and Wales, shows that the average yield for both countries increased from 5.6% in the second quarter of 2022 to 6.3% in the same period this year.

This is the second consecutive quarter of annual growth, although slightly lower than the 6.5% recorded in the first quarter of 2023.

The report attributes the rise in yields to a combination of factors, such as a shortage of rental supply, higher rental demand and lower house prices.

‘A lack of property supply’

Fleet’s commercial officer, Steve Cox, said: “As our latest Rental Barometer shows, the fundamentals of the private rental sector across England and Wales continue to be fairly similar, namely a lack of property supply, strong ongoing tenant demand, and house prices continuing to ease.

“This has meant in every single region in which Fleet lends we have seen an annual increase in rental yields, albeit with a number of regions slightly down on the yields we saw in the first three months of the year.”

He added: “Rate fluctuations, caused by sticky inflation, clearly had a major impact, most notably in terms of the rates we could offer – which moved upwards – and in terms of both rental cover at the origination of the loan, plus the average loan size, and the percentage of our business which was purchase.

“All have been impacted as landlords, and their advisers, have sought product solutions within a higher interest rate environment, and getting over the affordability hurdle remains a significant challenge for all existing and new landlord borrowers.

“For those that can stay invested and who can make the maths work on their properties, buy to let remains a strong investment.”

Report reveals some regional variations

However, the report also reveals some regional variations in the performance of the BTL sector.

The North East of England remains the top region for rental yields, with an impressive 8.6% for the twelfth quarter in a row.

Wales and the North West also saw significant increases in their yields, up 1.2% and 0.4% respectively from a year ago.

But some regions experienced a slight dip in their quarterly yields, such as Yorkshire and Humberside, the South West and the South East.

Five-year fixed-rate product rate for landlords

The Fleet barometer also shows the average five-year fixed-rate product rate for landlords increased from 5.35% in the first quarter to 6.09% in the second quarter.

This is higher than the average rate across the whole market, which was 6.31%.

The lender says that the recent drop in inflation, which was lower than expected, could lead to lower swap rates and lower interest rates in the next three months.

Its average loan size for landlords fell from £197,000 to £174,000, while the average rental cover at loan origination also fell from 181% to 167% – which suggests that landlords are being more cautious and conservative in their borrowing and investing decisions.

Also, the number of landlord-owned properties went up one to 12, highlighting that portfolio landlords are still investing, while the average rent price grew from £1,319 to £1,353.

In Greater London, tenants are paying £2,111 on average – in the North East the average rent is £643.

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13:22 PM, 25th July 2023, About 10 months ago

How are they measuring 'yield'?


2:10 AM, 26th July 2023, About 10 months ago

Reply to the comment left by JB at 25/07/2023 - 13:22
Probably the normal way: gross advertised annual rent as a percentage of estimated property value. It's a rubbish measure - the "gross returns rising" story complexly ignores rising costs, especially interest rates, that dramatically lower net returns - but it's relatively easy for letting agents to calculate.

But as we all know, the "rents rising at X%" story only applies to new advertised properties, which is only a tiny part of the market and includes new-builds and renovations which ought to earn a premium rent. They have no way, as far as I know, of measuring how rents are rising (or more probably not) on existing tenancies more generally, and the X% figure is never averaged out across all tenancies.

Arguably a more sensible measure would be net taxable profit as a percentage of capital employed, but this would vary so much between individual landlords, it would be impossible to calculate. The statisticians would need to estimate instead by conducting regular surveys of a representative sample of landlords and test their truthfulness against other data like tax receipts, though that is a lagging measure, but less so when HMRC force Making Tax Digital onto long-suffering landlords.


8:25 AM, 26th July 2023, About 10 months ago

Reply to the comment left by matchmade at 26/07/2023 - 02:10
I agree and it becomes more inaccurate when considering HMO's where the landlord does or doesn't pay for the utilities. Something estate agents don't even seem to grasp.

Additionally, the balance of the type of property considered can also make a difference. I always wonder if the 'average property price' has been suitably adjusted for this.

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