Rental yields and tenant demand are holding firm for landlord’s property investments, although portfolio profits eased on the previous quarter, data from BVA BDRC shows.  

But landlords are likely to raise rents this year after reporting ‘increased running costs.’  

Yields held steady at the tail-end of 2022, softening by just 0.1% to an average of 5.7% across the country, with rental properties in Wales securing the strongest yield figures of 6.4%, according to the data group’s fourth quarter 2022 BVA BDRC Landlord Panel report. The survey is conducted on behalf of broker-only lender Foundation Home Loans.  

Properties that were houses in multiple occupation went back to the top spot of the index after offering the strongest yield by property type, at 6.4% for the quarter, followed by multi-unit blocks at 6.2%.  

Landlords’ perception of tenant demand remained stable in the last quarter, with net demand holding firm at 65%.   

Regionally, central London landlords reported the highest strength of current tenant demand, however, demand appears to have fallen, on a net basis, across several regions including the North West, West Midlands, the South East and outer London.  

Void periods fell to a historic low with only one-in-four landlords reporting a property without tenants in the preceding three months.   

Also, the typical void period fell by an average of 12 days to 70, suggesting it was easier for landlords to fill properties than at any point in the last six years.  

The study says 81% of landlords report they were making a profit from their letting activity, down 5% on the figure from the previous quarter. For those landlords who have four to five properties, 90% said they continued to make a profit.   

The survey says, overall its landlord profitability index fell six points quarter-on-quarter, as “a larger number of landlords now reporting they are ‘breaking even’ financially on their investments”.  

Foundation Home Loans adds: “The impact on profitability might lead to a greater number of landlords choosing to raise rents in 2023.   

“Larger landlords were likely to be the most aggressive in this – they are 20% more likely than average to levy an increase in the first half of the year but while typical rents are likely to increase by 7.7%, landlords with the smallest number of properties are likely to seek the highest increases at 8.7%.”  

Landlords said that ‘increased running costs’ were the most common driver for rental increases, while 61% said they would be increasing rents to align with their local market, and 47% reported rising mortgage costs would require them to raise rents – this was up from 41% in the third quarter of 2022.  

The report adds that a significant number of existing landlords – one-third – say they plan to remortgage over the next 12 months.   

Of those who intend to remortgage, one in three are unsure, at this stage, what product they might opt for, with many saying they will take advice from their broker on what is the best option for them.   

Foundation Home Loans managing director, commercial, George Gee says: “There are some very positive fundamentals here, particularly for professional and larger portfolio landlords, in terms of stable rental yields, strong tenant demand, and ongoing profitability of portfolios.   

“However, as we might expect, landlords who have a small number of properties are being hit hardest by the rising cost of letting a property including potentially increased mortgage costs.  

“It is for these reasons, and the continued low supply of properties in the private rented sector, that many landlords are likely to raise rents in 2023, as they also seek to realign their properties for the local market, and make sure these properties can continue to make a profit.  

“This research was undertaken soon after the mini-Budget, and we’ve already seen the market much calmer since then, which we hope will feed into landlord’s views looking forward.  

“Overall, the market for refinance in particular remains strong, and as many more landlords will require the insight of their mortgage advisers when they come to remortgage their properties.   

“Understandably many landlords are unsure about what product is best for them, and this presents a clear and obvious opportunity for advisers to touch base with existing clients as well as those who might ordinarily seek to secure their next mortgage via direct means.”  

BVA BDRC’s research comprised 752 online interviews with landlords in November and December last year.