Fleet Mortgages has released the latest data from its Buy-to-Let Rental Barometer covering second quarter rental yields across England and Wales.

Across all regions of England and Wales the barometer shows an annual increase in rental yields for the second quarter in a row, with the total yield for both countries up from 5.6% a year ago to 6.3% now. This is slightly down on the previous Q1 2023 figure of 6.5%.

Fleet said increased yields continued to be the consequence of a number of factors, namely an ongoing shortage of rental stock leading to higher rental prices, plus an easing in house price levels.

As a result, there was an increase in annual yields across every single region, however there was something of a split in terms of quarter-on-quarter changes with only the North West, Wales, East Anglia and Greater London seeing an increase on the yields achieved in Q1 this year.

The North East of England continues to retain its top regional rental yield figure for the twelfth consecutive quarter, posting the same 8.6% yield as the previous quarter, however both Wales and the North West jumped above Yorkshire and Humberside in the table, up 1.2% and 0.4% respectively on the previous year. East Anglia and Greater London also moved upwards.

Fleet’s average loan size is now £174k, down from £197k in the previous quarter, with the average rental cover at loan origination also slightly down from 181% to 167%.

Average rental income across the regions where Fleet lends was slightly up from £1,319 per month in the previous quarter to £1,353. Rental incomes ranged from an average of £643 per month in the North East to £2,111 in Greater London.

According to the barometer, gross rental income now exceeded £1,000 in six out of 10 regions, whereas a year ago, this was true for only five regions.

Fleet Mortgages chief commercial officer Steve Cox comments:

“Quarter two of 2023 was undoubtedly an eventful three-month period and followed a relatively benign first quarter of the year, with significant increases in product rates which had a clear impact across the wider mortgage market but also specifically within buy-to-let.

He adds: “Rate fluctuations, caused by sticky inflation, clearly had a major impact, most notably in terms of the rates we could offer – which moved upwards – and in terms of both rental cover at the origination of the loan, plus the average loan size, and the percentage of our business which was purchase.

“All have been impacted as landlords, and their advisers, have sought product solutions within a higher interest rate environment, and getting over the affordability hurdle remains a significant challenge for all existing and new landlord borrowers. Hence, why we have seen a growing number of lower rate/higher fee products coming to market.

“There are positives to grasp though, not least the fact we continue to cater for a predominantly professional landlord-focused borrower demographic, the obvious stronger rents and yields that are achievable, and the recent falls in inflation are starting to be felt in the capital markets, with swaps coming off their most recent highs.

“I’m hopeful that, if this continues to be the direction of travel, we’ll see product rates reacting to swaps, and we’ll be able offer some keener pricing across our range and to explore bringing back certain product types that we would ordinarily be offering.