Across England and Wales, rental yields for buy-to-let landlords have continued to climb, and certain regions remain standout investment hotspots.
Over the past couple of years as the post-Covid house price acceleration has steadied across much of the country, property investors and landlords have increasingly switched their focus to the rental yields they can generate from a property.
Rental yields across much of the country have been strengthening for some time now, as demand in the private rented sector has soared far beyond the rate of increase in rental housing supply, while house prices have steadied in the wake of the post-Covid rush.
With rising costs and mortgage rates affecting buy-to-let landlords as much as any other property owner, it is likely that many landlords have been reassessing their portfolios and targeting the most profitable and high-yielding property types and locations, which could go some way to explain the ongoing climb in rental yields.
As Fleet Mortgages’ Q2 2024 Rental Barometer shows, location has a huge role to play when it comes to targeting strong rental yields for your property investment.
The north/south divide
Despite the fact that the south of England, and particularly London, tend to have the highest rents in the country, they can generally be found at the bottom of the list when it comes to rental yields for landlords – and this is nothing new.
That being said, Greater London, the south east, East Anglia and the south west have all seen a rise in their yields both year-on-year and quarter-on-quarter in Fleet’s latest report.
At the top when it comes to yields is the north east, where landlords can reap an average return of 10.1%. This is up by 1.6% annually, as yields in this region in Q2 last year were 8.5%, which is still a very high average.
The second highest region in the country for rental yields was the north west, which has seen an increase of 0.9% year-on-year, bringing the average to 8.4% now. Of course, across various parts of these regions, some landlords will be seeing yields far higher than this, while other areas may be lower.
Wales (8.3%), West Midlands (8%), Yorkshire and Humberside (7.6%) and the East Midlands (7.5%) made up the next four top regions, all being located in or towards the north of the country.
Below this were the south west (6.9%), East Anglia (6.8%), the south east (6.4%) and Greater London at the bottom with an average of 6.1%, while the average across England and Wales as a whole was 7.6% – up from 6.6% this time last year.
Supply/demand imbalance fuels rental yields
The fact that every region across England and Wales has recorded a rise in landlords’ yields according to Fleet Mortgages is largely down to the fact that the number of homes available continues to fall short of the number of tenants seeking accommodation in most places.
As Steve Cox, chief commercial officer at Fleet Mortgages, says, the base reasons for these rising yields are “clearly not going away”, and this is also being affected by higher mortgage rates, with many landlords pushing up prices to cover these additional costs.
He asserts that the wide expectation is for the Bank of England to announce an interest rate cut in August or September, adding that “swap rates will move to reflect further cuts in the not so near future”. In fact, many lenders have been reducing their rates again over the past couple of weeks.
Steve Cox concludes: “There is further good news in this Barometer with an increase in purchase applications – a signal that landlords are seeking to add to portfolios, and with the average rental cover at origination also rising, it shows that borrowers continue to secure the rents they need to cover both their mortgage and other costs.
“Again, it won’t be surprising to see limited company borrowers continuing to dominate, given the tax relief that can still be secured within a corporate structure. That is a trend that will continue for many years to come.
“Overall, these latest figures are positive, and they signal further activity in the second half of the year, particularly if – as we are already seeing – pricing continues to move down. We at Fleet have already been able to make some price reductions and our expectation is that we will continue to move further in this direction later in 2024.”
