Yields rising - but enough to stop landlords quitting the sector?

Buy to let specialist lender Fleet Mortgages says almost every region of the UK is now seeing increased yields for investors. 

The North East of England is top for the 10th consecutive quarter, showing only a slight 0.2 per cent drop compared to a year ago, while the North West and Yorkshire and Humberside return to the top three. Apart from the North East, the only other region to post a drop in annual yields was in the West Midlands.

Fleet says the long-term buy to let supply shortage, and equally long-term high demand, is driving rents higher - a trend exacerbated as landlords have to cover higher mortgage costs.

Fleet warns that yields could fall back slightly but would remain strong because of the supply-demand imbalance which is unlikely to be resolved in the short- or medium-term.

Chief commercial officer at Fleet - Steve Cox - says: “For the first time in well over a year we can see the vast majority of regions in England and Wales returning a significant annual and quarterly increase in rental yield levels, set against the backdrop of a PRS which is woefully short of the supply required to meet tenant demand.

“Yields are strong right across the board with those in the North continuing to lead the way, while we have even seen increases in Greater London, which has tended to move in the other direction in the last few years.

“This will be positive news for landlords, and we hope will give renewed confidence to them that – should they be able to make the numbers work – there is a well of tenant demand to be accessed and yields to be achieved.

“However, the supply-demand imbalance in the PRS will have been exacerbated by the fallout from the ‘Mini Budget’, and the higher rates it brought in, although we are pleased to see buy-to-let mortgage rates have been on a downward trend in recent months, and Fleet has been able to cut our pricing in recent weeks.

“The cost of mortgage finance has still increased over the period though, and this may well have resulted in a number of landlords – particularly those with just one or two properties – deciding to sell up.

“It all adds up to a situation where some landlords are being forced to leave, some landlords are contemplating their future against a backdrop of increased costs, some landlords want to buy but supply of homes to purchase is low, and where overall there is clearly not enough properties for the tenant demand that exists and is growing.

“There is good news in the form of a lender community with a strong appetite to lend, however, we may well need the Government to look again at its policies which are continuing to impact on landlords and their ability to provide the PRS homes the country so desperately needs.”