Wales was the region with the highest average rental yields in Q4 2023, reaching 8.9% during this quarter, revealed the latest Fleet Mortgages rental barometer.
The region saw a 220 bps year-on-year increase in rental yields — from 6.7% in Q4 2022 to 8.9% in Q4 last year — which was the highest rise compared to all other regions.
The areas with the second and third highest average rental yields were the North West and Yorkshire and Humberside, both of which saw a year-on-year growth of 110 bps to 8.6% and 8.4%, respectively.
In Q4 2023, most UK regions saw annual yield increases, with the exception of the North East, East Midlands and South West, which saw small declines.
The 20 bps dip in rental yield in the North East, together with the corresponding increase in rents in Wales, resulted in the region losing its top spot in Fleet’s rental barometer after 13 consecutive quarters leading the way.
Overall, the average yield for England and Wales grew slightly to 6.9%.
Fleet said that in all regions of the UK, rental yield was being driven by demand continuing to outstrip supply, inevitably leading to higher rental prices in most areas.
The rental barometer also showed that Fleet’s average loan size fell on the previous quarter down from £187,000 to £175,000, with the average rental cover at loan origination also dipping from 177% to 170%.
In addition, mortgages for purchase business increased from 30% of Fleet’s total lending to 32% — the lender viewed this as a positive development, which potentially reflects a more benign interest rate environment allowing landlord borrowers to look at adding to portfolios.
The number of investment properties owned by landlord borrowers stayed stable at 12.
Steve Cox, chief commercial officer at Fleet Mortgages (pictured above), commented: “While Q4 differs to the two previous quarters in terms of having three regions showing falls in average annual rental yields, those falls are small and we have total yield across all those England and Wales regions in which Fleet lends continuing to move upwards, now totalling 6.9%.
“That remains a strong rental yield figure, however in other regions — notably Wales, the North West and Yorkshire and Humberside — rental yields have jumped significantly again, reflecting no doubt a continued lack of supply compared to overall tenant demand.
“Through 2024 we might anticipate rents come off these highs a little, but it’s still likely to be the case that the number of prospective tenants wanting property far outweighs its availability.”
With mortgage product pricing easing in recent weeks and purchase lending improving, Steve claimed this would allow some landlords to buy properties in the near future — however, he said Fleet is not anticipating a huge improvement in purchase numbers.
“Historically, we’ve tended to see more landlords active in the sector when rates are around the 5% mark, and we’re getting there, so we would not rule out more purchasing, providing landlords can find the property they require — no easy feat in the current market,” he added.
“Overall, it has been a much more positive start to the year than we saw in the spring and summer of 2023, and while we are not anticipating a huge boost to BTL transactions and lending activity, there is a far greater potential for it than we witnessed for most of last year.”
