For landlords across England and Wales, the start of 2024 has brought a slight but significant boost in rental yields, indicating a potentially prosperous year ahead for property investors.
A report from Fleet Mortgages has highlighted an increase in rental yields – the profit landlords make from their rental properties – by 0.4%, reaching an average of 7.1% in the first quarter of 2024. This uplift signifies a promising start for landlords and property investors, pointing towards a lucrative rental market.
The North-South Divide
Interestingly, the report unveils a persistent North-South divide, with northern regions outperforming their southern counterparts. Despite a minor setback in the North East, where yields slightly declined by 0.4%, this area still boasts an impressive average yield of 8.4%, making it a hotspot for property investment.
Yorkshire and Humberside have now emerged as the new leader, surpassing the North East with a significant 1.3% increase in yield, marking the top spot with an 8.5% yield. Meanwhile, Wales, previously leading the charts, has now settled in fifth place. This reshuffling underscores the dynamic nature of the UK’s rental market and the lucrative opportunities in the North.
A Return to the Status Quo
Steve Cox, Fleet’s chief commercial officer, comments on the shift back to a familiar pattern, “In a sense, this iteration of our rental barometer returns to the status quo, with the northern regions once again making up the top three on the table, after Wales had briefly headed the list for the last quarter of 2023. It’s positive to see virtually all regions within which Fleet lends in England and Wales showing a positive year-on-year increase in rental yield, with Yorkshire and Humberside showing a significant 1.3% increase, which means it now tops the table with a very strong 8.5%. Indeed, the table itself mirrors the geography of England and Wales, with the lower rental yields for the Southern regions, which you might expect given, on average, the greater capital values of properties ‘down South’.”
Regional Yield Boosts and Mortgage Market Movements
The report attributes the overall rise in regional yields to a tight supply coupled with strong tenant demand, pushing rents higher across most regions. Fleet Mortgages also hints at an optimistic outlook for landlords concerning interest rates, with predictions of a decrease in mortgage rates, potentially boosting the property market further.
Moreover, the average loan size has seen a jump to £183,000, up from £175,000 in the previous quarter, alongside a slight increase in rental cover from 170% to 172%. This rise in loan sizes and rental cover ratios spells out a slightly easing financial landscape for landlords, who faced a tough 2023 with mortgage affordability and costs.
A Brighter 2024 for Landlords
Despite the challenges of the past year, there’s a silver lining for landlord borrowers with falling mortgage product rates, fostering an environment ripe for portfolio expansion and increased confidence among investors. Fleet reports a steady climb in purchase business, suggesting a more vibrant property buying scene as we progress through 2024.