Three areas in particular have seen rental yields surge – Wales, the north west and Yorkshire and the Humber – pushing up the average for buy-to-let landlords.
The upwards trajectory for rental yields across much of the UK continued in the final quarter of 2023, according to the latest figures from Fleet Mortgages in its quarterly barometer. Buy-to-let landlords are now achieving average yields of 6.9%, up by 0.3% from the same period last year.
This is due to a range of factors, including property prices in certain locations holding their own or continuing to increase, despite external headwinds that have affected other markets due to rising mortgage rates. Rental prices have also continued to increase, due to demand outpacing supply in many areas.
Many investors have also increasingly honed in on high-yielding locations over the past couple of years, focusing on this aspect of their overall return on investment as opposed to capital appreciation.
Top rental yields by region
According to Fleet Mortgages, the north east has now been knocked off the top spot due to a small dip in the region’s average rental yields. Now, the best yields can be found in Wales, which saw a 2.2% increase between Q4 2022 and Q42023, bringing the average for the country to 8.9%.
The north west and Yorkshire followed with the next highest rental yield rises, with both gaining 1.1% on the previous year.
In other reports, Liverpool has stood out as the highest-yielding location in the UK overall, and many of Manchester’s surrounding areas also tend to bring in healthy yields due to having lower overall property prices and strong rental demand and pricing.
While the north east’s dip in yields saw it knocked off the top spot, the East Midlands and the south west also saw small declines in their average yields in the latest barometer.
Commenting on the figures, Steve Cox, chief commercial officer at Fleet Mortgages, said: “[6.9%] remains a strong rental yield figure, however in other regions – notably Wales, the North West and Yorkshire and Humberside – rental yields have jumped significantly again, reflecting no doubt a continued lack of supply compared to overall tenant demand.
“Through 2024 we might anticipate rents come off these highs a little, but it’s still likely to be the case that the number of prospective tenants wanting property far outweighs its availability.”
Landlords’ portfolios remain stable
Alongside rental yields, Fleet’s research also looks at borrowing figures for the market, as well as portfolio sizes for landlords. The Q4 barometer found that the number of investment properties owned by mortgages landlords had stayed stable for the quarter at 12.
The average loan size for mortgages on Fleet’s books fell slightly during the period, from £187,000 to £175,000, and the average rental cover at loan origination also fell from 177% on average to 170%. However, it also saw a 2% increase in the number of mortgages taken out for purchase.
While 2023 was a challenging year, particularly for those with mortgages, the situation has already begun to ease as lenders have been dropping their rates. For many landlords, increasing rental yields may also have boosted confidence and optimism for the year ahead.
However, 2024 still has a number of unknown factors, such as how the upcoming Spring Budget could impact the housing market, uncertainty over the direction of inflation, and waiting to see when the Bank of England will begin to bring down interest rates.
Steve Cox adds: “Historically, we’ve tended to see more landlords active in the sector when rates are around the 5% mark, and we’re getting there, so we would not rule out more purchasing, providing landlords can find the property they require – no easy feat in the current market.
“Overall, it has been a much more positive start to the year than we saw in the Spring and Summer of 2023, and while we are not anticipating a huge boost to buy-to-let transactions and lending activity, there is a far greater potential for it than we witnessed for most of last year.”