Annual rental yields across England and Wales showed a slight fall in Q2 this year compared to the same period last year, down from 6.1% to 5.5%, according to Fleet Mortgages’ latest buy-to-let (BTL) rental barometer. 

On a quarterly basis, the barometer showed a small decrease of 0.2% from the 5.7% in Q1. 

The yearly trend across all regions was down with every area of England & Wales seeing a drop in rental yields of between 0.1% and 0.9%. 

However, a more recent quarterly comparison with Q1 this year shows that Wales and the East Midlands have seen rental yields increase, while the North West, West Midlands, and the South West have seen no change.

The five remaining regions, North East, Yorkshire and Humberside, South East, East Anglia and Greater London, showed drops of 0.6% and below. 

The North East, Yorkshire & Humberside, and the North West continued to see the highest levels of rental yields. 

The North East of England has the top rental yield regional figure for the eighth consecutive quarter, although the yield did slip slightly from 8.7% in the last quarter to 8.3% in Q2. 

Meanwhile, Wales saw a 0.6% quarterly increase in rental yield and the East Midlands moved up by 0.3%. 

Fleet highlights that all those regions running at rental yield figures higher than the England & Wales average were doing so because of the ongoing strength of tenant demand in those areas compared to the level of supply available. 

The BTL specialist lender says it was continuing to see this strength in key town and city centres, with hotspots such as Liverpool, Manchester, Sheffield, Bristol and Cardiff.

Commenting on the latest data, Fleet Mortgages chief commercial officer Steve Cox says: “This is, without doubt, a very interesting period for landlords, lenders, and the wider private rental sector, as we seek to marry up a number of ongoing issues which are all having an impact.”

“The positive news is that, as our Rental Barometer shows, yields are holding up well, and while we have seen a drop-off since the highs of last year, in general, there has been consistency across most regions on a quarterly basis.”

“That clearly has much to do with strong tenant demand, married up with relatively low levels of supply. Properties are highly sought after, and rents are strong due to the scarcity value of quality homes. Our anticipation is that, in most regions of the UK, yields will stay pretty constant especially while this supply-demand imbalance is in place.”

“We know that many landlords would like to remortgage existing properties in order to fund new purchases, however, there are two areas to consider here. First is the increase in buy-to-let mortgage product pricing which has been obvious in the last couple of months, and secondly is a lack of supply to purchase.”

“Both might well hold landlords back from acting right now, however, we do anticipate that 2022 will see strong levels of remortgaging throughout the rest of the year, and as lenders get on top of their current service issues, we will see a return to stability, and pricing, for buy-to-let mortgages, although this might not be visible until the early part of next year.”

“There may also be an element of landlords holding off any purchase ambitions as they await to see how house prices in the UK react to the double-whammy of the cost of living increases and more expensive mortgages. A number of economists anticipate this will see house prices dropping off their highs, which might present a better opportunity for acquisitive landlords.”

“Overall, for existing landlords, the rental yield figures remain a strong source of comfort, and while we believe the level of demand for PRS properties will dip, there is likely to still be enough – especially compared to property choice – to ensure they maintain good levels throughout the rest of 2022.”