The total average rental yield for England and Wales shows an annual increase again up by a smaller 0.3% % to 6.9% on the same quarter in 2022. This is also up 0.1% on the Q3 2023 figure of 6.8%.
This is according to buy to let lender Fleet Mortgages Buy-to-Let Rental Barometer covering Q4 2023 rental yields across England and Wales.
Over the past two quarters, every region of England and Wales had exhibited annual yield increases, however the barometer shows three regions – the North East, East Midlands and the South West – have dipped slightly, although only by a small percentage.
A large 2.2% increase in rental yields over the year takes Wales to the top spot with 8.9% yield, which was also 1.7% up on Q3 2023.
Both the North West and Yorkshire and Humberside saw rental yields increase by 1.1% annually.
Fleet said that in all regions of the UK, rental yield was being driven by demand continuing to outstrip supply, inevitably leading to higher rental prices in most areas.
Over the last quarter of 2023, the market saw soft rates drop significantly, and this fed into buy-to-let product rates also coming down.
Fleet’s average loan size fell on the previous quarter, down from £187k to £175k, with the average rental cover at loan origination also dipping from 177% to 170%.
Positively, mortgages for purchase business increased from 30% of Fleet’s total lending to 32%, potentially reflecting a more benign interest rate environment allowing landlord borrowers to look at adding to portfolios. The number of investment properties owned by landlord borrowers stayed stable at 12.
Fleet Mortgages chief commercial officer Steve Cox commented:“While Q4 differs to the two previous quarters in terms of having three regions showing falls in average annual rental yields, those falls are small, and we have total yield across all those England and Wales regions in which Fleet lends continuing to move upwards, now totalling 6.9%.
“That 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.
Cox pointed out that 2023 was a challenging year, not least in terms of landlords’ ability to add to portfolios given the big increase in mortgage product pricing.
“That has clearly eased in recent weeks, and we ourselves have seen purchase lending improve, but we are not anticipating a huge improvement in purchase numbers, albeit lower rates and the ability to meet affordability criteria, will allow some landlords to buy.
“Whether this changes significantly might have a lot to do with whether the government acts on stamp duty in the March Budget, and whether rates continue to fall as they have done over the last month.
He added: “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.”
