Rental yields, much to the delight of investors, have not just grown but have sustained this growth for the third consecutive quarter. Compared to the same time span in 2022, the average yield has seen a substantial rise of 1%, settling at an impressive 6.9%. This growth is not just an annual highlight; it also marks a 0.6% climb from the yields reported in the second quarter of this year.
Fleet Mortgages compiled these promising figures from an array of sources, including trends within their lending activities, overarching market movements, and distinct regional variations.
Behind the Scenes of Buy-to-Let Boom
Steve Cox, the Chief Commercial Officer at Fleet, points out that this surge is the result of several contributing factors that have been consistently noticeable throughout 2023. The primary forces behind this yield growth include a substantial imbalance between supply and demand—more people are looking to rent than there are properties available—and a general dip in house prices.
The increased demand from tenants, coupled with a shortage of available properties, has given landlords the upper hand, allowing them to increase rents. Interestingly, while property availability compared to tenant demand is pushing monthly rents up in many regions, the Northern regions have experienced a dip this month.
A Regional Breakdown: Winners and Underperformers
When we delve into the regional specifics, an encouraging trend emerges: every single region has witnessed annual growth in rental yields. The West Midlands, East Anglia, and the South East are leading the pack with the most significant leaps.
However, it’s not all uniform growth. The North West and Wales have seen slight reductions in their yields on a quarterly basis, though they’re in the minority, with all other studied regions experiencing positive changes.
Certain areas, particularly the North East of England, have outshone others, boasting a staggering rental yield of 9.1% — the highest figure for the thirteenth consecutive quarter. Conversely, East Anglia and the West Midlands, while not at the top spot, have seen the largest percentage increase, each climbing by a substantial 1.3% compared to the same quarter in the previous year.
The Future Landscape: Predictions and Challenges
The current conditions suggest that this trend is not a flash in the pan. Regions like Greater London, the South West, and the South East are grappling with a shortage of property listings, inevitably leading to continued growth in rental prices for the foreseeable future.
However, it’s essential to note that circumstances are more favourable to portfolio landlords, who are actively seeking to expand their collection of properties. In contrast, smaller investors in the private rental sector are facing challenges in balancing the financials involved in property acquisition.
Despite the overarching positive trend, the number of investment properties owned by landlord borrowers has remained stable, indicating a cautious approach to expanding portfolios.