Wales has surged ahead in the rental market, achieving an impressive 8.9% yield, which is a 2.2% increase over the past year. This remarkable growth, including a 1.7% rise just in the last quarter of 2023, has positioned Wales at the top of the rental yield league table.
Not far behind, the North West and Yorkshire and Humberside regions have also experienced significant growth. These areas saw their rental yields climb by 1.1% annually, marking them as other lucrative regions for property investors.
Changing Dynamics in Loan Sizes
An interesting shift occurred in the average loan size, particularly noted by Fleet Mortgages. The average loan size dipped from £187,000 to £175,000. Concurrently, there was a slight decrease in the average rental cover at loan origination, moving from 177% to 170%.
Steve Cox, Chief Commercial Officer at Fleet Mortgages, sheds light on these trends. Despite a fall in average annual rental yields in three regions during the fourth quarter, the overall yield across England and Wales has continued its upward trajectory, now standing at 6.9%.
Cox points out that this overall strong performance is underpinned by significant jumps in certain regions, primarily Wales, the North West, and Yorkshire and Humberside. He attributes this to an ongoing imbalance between supply and tenant demand.
Forecast for 2024 and Beyond
Looking ahead to 2024, Cox anticipates a potential decrease in rents from their current highs. However, he expects the demand for rental properties to continue outweighing supply.
2023 posed challenges for landlords, especially in expanding their portfolios due to increased mortgage product pricing. However, recent easing of rates and improved purchase lending signal a positive shift, though a significant surge in purchase numbers isn’t expected immediately.
The Potential Impact of Government Policy and Mortgage Rates
Cox underscores the potential influence of governmental policies, particularly regarding stamp duty in the upcoming March Budget, and the trajectory of mortgage rates. He notes that historically, landlord activity in the sector increases when rates hover around the 5.0% mark, which is a figure we are approaching.
A Positive Outlook for the Year Ahead
Reflecting on the start of the year, Cox remarks that it has been more positive than the spring and summer of 2023. While a huge boost in buy-to-let transactions and lending activity isn’t anticipated, the potential for growth is considerably higher than what was seen for most of the previous year.
In conclusion, Wales and northern regions of the UK are currently leading the pack in rental yields, offering attractive opportunities for property investors. While the overall market faces its share of challenges, there is cautious optimism for continued growth and stability in the sector.