Where landlords struggle with low yields revealed

Areas where landlords might struggle to refinance due to their properties failing to meet lender interest coverage ratio (ICR) standards and potentially limiting their financial options, have been revealed.

Specialist lender Octane Capital has uncovered where rental returns have been consistently poor over the past three years.

Its research, which examined average yields across Great Britain since 2023, indicates that the national average stands at 5.7%.

However, regional disparities are stark with Scotland leading with a robust 6.2% average yield.

Property ICR requirements

The firm’s chief executive, Jonathan Samuels, said: “Our latest research highlights the difficult reality for landlords in low-yielding parts of the market, where properties may no longer fit within ICR requirements as they approach the end of their current mortgage terms.

“For many, the result is limited refinancing options from mainstream lenders, and this is where specialist finance plays a vital role.”

He adds that bridging and short-term lending offers flexibility for restructuring, selling or re-investing into stronger performing assets.

Poor yield performances

Octane’s research also shows that Scotland is followed by the North East at 5.2% and the North West at 5%.

In contrast, the South East delivers a 4.1% yield, with the East of England and East Midlands close behind at 4.2%, and the West Midlands at 4.4%.

Even London, despite recent rental growth, has only managed a 4.5% average yield over the period.

Drilling down to local authority level, the study identifies Kensington and Chelsea as the UK’s weakest performer, with an average yield of just 2.8% over the last three years.

Other areas struggling include Richmond upon Thames and Elmbridge, both at 3.0%, Waverley in Surrey at 3.0% and Derbyshire Dales at a low 2.7%.

Other underperformers include Powys in Wales and South Hams in the South West, both at 2.9%, alongside North Norfolk Rutland, and Uttlesford in the East of England, all at 3.1%.

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