Lender explains why it does not tell the whole story
Rental yields across England and Wales fell in the first three months of this year, down from 6.3% a year ago to 5.7% during the first quarter of 2022.
The statistics were revealed by buy-to-let specialist lender Fleet Mortgages as it released the latest iteration of its Buy-to-Let Rental Barometer on Tuesday.
Fleet said that while the quarterly figure dropped year-on-year, there was a slight increase of 0.1% compared to the previous quarter of Q4 2021.
All regions, except the North East, have seen a slight yearly drop in rental yields. However, half of the regions have improved yields when compared to Q4 2021, while the yearly drops are below 1% for all regions except one.
Rental yields also fell last quarter, from 6.2% during the same period a year ago to 5.6%.
Read more: Rental yields down 0.6% yearly in 2021.
“On a yearly basis, it’s clear that rental yields have dipped very slightly, but that comparison doesn’t tell the whole story by any means, and the shorter-term analysis has to focus on the still, very strong figures fuelled by tenant demand, with the future forecast likely to be more of the same. At least until towards the end of the year,” Steve Cox, chief commercial officer at Fleet Mortgages, said.
According to Fleet, the Northern regions continue to see the highest levels of rental yields across England and Wales. For the seventh consecutive quarter running, the North East of England has the top rental yield regional figure, increasing again to 8.7%.
However, there has been some movement in other places, with Yorkshire, Humberside, and the North West moving into the top three.
Fleet suggested that this has much to do with significant increases in demand around hotspot areas. These are generally situated in, and around, town and city centres such as Liverpool, Manchester, and Sheffield.
The lender said it continues to anticipate strong tenant demand right across England and Wales through the rest of 2022, but this might change towards the end of the year and into 2023, citing increases in mortgage rates, a tightening of government policies, and other pressures on household incomes, as having a specific impact.
It said buy-to-let mortgage rates had increased moderately during Q1 2022 with lenders absorbing increased funding costs to maintain volumes. It also expects rates to continue rising into the latter stages of 2022, as it suggested it was unlikely lenders would continue to absorb both bank and swap rate increases.
“Looking further ahead, it’s likely that landlords are going to need to cut their cloth accordingly when it comes to setting rents, especially given the large increases in the cost-of-living that tenants are clearly not immune from and will need to be factored into rent levels,” Cox said.
“Overall, it’s obvious that property investment retains its allure as a strong asset class, and that the good news for landlords is the supply of finance from lenders like Fleet remains very strong with rates still at highly competitive levels.”
Fleet’s Buy-to-Let Rental Barometer covers all areas of England and Wales in which Fleet lends and highlights the rental yield changes that have occurred in each of those regions.
