All regions across England and Wales, with the exception of the North East, have seen a slight yearly drop in rental yields, according to new data from Fleet Mortgages Q1 2022 rental barometer.

While rental yields dropped, half of the regions have seen improved yields when compared to Q4 2021. The yearly drops are below 1% for all regions bar one.

Rental yields in Wales experienced a slight fall, down from 6.3% a year ago to 5.7% during Q1 2022. However, the figure represents a 0.1% increase on the previous three-month period, Q4 2021.

The North East of England has the top rental yield regional figure for the seventh consecutive quarter running, increasing again to 8.7%.

There has been some movement with other regions, as Yorkshire & Humberside and the North West move into the top three.

Fleet suggests the shift is from significant increases in demand around hotspot areas, which are situated in, and around, town and city centres such as Liverpool, Manchester and Sheffield.

Fleet says it continues to anticipate strong tenant demand right across England and Wales through the rest of 2022.

Demand might change towards the end of the year and into 2023, as Fleet cites the 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.

Fleet 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.

Fleet Mortgages chief commercial office Steve Cox says: “In our previous forecast, we anticipated demand for rental properties would continue to be strong into 2022, while also seeing a relative increase in mortgage interest rates, and that has certainly proven to be the direction of travel for the market.”

“This demand-side strength, coupled with relatively tight supply, means rental yields continue to be strong, and that overall – across England and Wales – we have seen an increase in levels compared to the last quarter of 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.”

“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.”