The final quarter of 2023 has witnessed a significant uptick in rental yields across the United Kingdom, with Wales, the north west, and Yorkshire and the Humber emerging as the standout performers. According to the latest data from Fleet Mortgages, buy-to-let landlords are now enjoying an average yield of 6.9%, marking a 0.3% increase compared to the same period last year.
This positive trajectory can be attributed to various factors, including resilient or appreciating property prices in specific locations, despite external challenges faced by other markets due to escalating mortgage rates. The persistent imbalance between rental demand and supply has also contributed to the surge in rental prices.
Investors have increasingly focused on high-yielding locations in recent years, prioritizing rental yields over capital appreciation in their overall return on investment calculations.
Top Performers by Region
Fleet Mortgages’ data reveals a shift in the top-performing regions. The north east, which previously held the lead, experienced a slight dip in average rental yields. Wales has now taken the top spot, witnessing a remarkable 2.2% increase in yields between Q4 2022 and Q4 2023, bringing the country’s average to an impressive 8.9%. The north west and Yorkshire closely followed with rental yield increases of 1.1% each.
Liverpool has emerged as the highest-yielding location nationwide, with several surrounding areas in Manchester also presenting robust yields due to lower property prices and strong rental demand.
While the north east faced a dip in yields, the East Midlands and the south west also experienced marginal declines in their average yields, as indicated in the latest barometer.
Stability in Landlords’ Portfolios
Fleet Mortgages’ research not only delves into rental yields but also explores borrowing figures and portfolio sizes for landlords. The Q4 barometer reveals that the number of investment properties owned by mortgage landlords remained stable at 12 for the quarter.
Despite a slight decrease in the average loan size from £187,000 to £175,000 and a dip in average rental cover at loan origination from 177% to 170%, there was a notable 2% increase in the number of mortgages taken out for property purchases.
While 2023 posed challenges for landlords, the situation has shown signs of improvement as lenders have lowered their rates. Increased rental yields may have contributed to a boost in confidence and optimism among landlords for the upcoming year.
However, uncertainties loom over 2024, with factors such as the impact of the Spring Budget on the housing market, inflation direction, and the timing of potential interest rate adjustments by the Bank of England. Steve Cox, Chief Commercial Officer at Fleet Mortgages, notes, “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.”