All regions of England and Wales have recorded a consecutive annual increase in rental yields for the second quarter, according to Fleet Mortgages' Buy-to-Let Barometer.

The total yield for both countries has risen from 5.6% a year ago to 6.3% presently. However, this figure represents a slight decline from the previous Q1 2023 figure of 6.5%.

Fleet's comprehensive regional snapshot encompasses all areas where lending is provided, highlighting the changes in rental yields within each region.

Fleet attributes the augmented yields to several factors, notably the persistent shortage of rental properties leading to higher rental prices, alongside a moderation in house price levels.

While there was an increase in annual yields across all regions, only the North West, Wales, East Anglia, and Greater London saw a quarterly rise in yields compared to Q1.

The North East of England maintains its position as the top regional rental yield figure for the 12th consecutive quarter, with an unchanged 8.6% yield. Wales and the North West have surpassed Yorkshire and Humberside in the table, achieving increases of 1.2% and 0.4%, respectively, compared to the previous year. East Anglia and Greater London also experienced upward movements.

Amidst persistent inflation impacting interest rates, Fleet's average 5-year fixed-rate product rate increased from 5.35% in Q1 this year to 6.09% in Q2. However, this rate remains slightly lower than the average 5-year fix across the market, which stands at 6.31%.

Fleet predicts that the unexpected decline in inflation announced this month will impact swap rates, potentially leading to rate fluctuations in the next three months.

In terms of lending metrics, Fleet's average loan size decreased from £197,000 in the previous quarter to £174,000, while the average rental cover at loan origination also declined from 181% to 167%.

Notably, mortgages for purchase business decreased from 37% of Fleet's total lending to 32%, while the number of investment properties owned by landlord borrowers increased from 11 to 12, indicating a predominant customer base of larger portfolio players.

Across the regions where Fleet provides lending, the average rental income slightly increased from £1,319 per month in the previous quarter to £1,353. Rental incomes varied from an average of £643 per month in the North East to £2,111 in Greater London.

The Barometer indicates that gross rental income now exceeds £1,000 in six out of 10 regions, a notable increase compared to the previous year's figures.

Steve Cox, Chief Commercial Officer at Fleet Mortgages, acknowledges the eventful second quarter of 2023 and the impact of product rate increases on the wider mortgage market and buy-to-let sector. He emphasizes the prevailing factors in the rental sector, including property supply shortages, robust tenant demand, and easing house prices, contributing to the rise in annual rental yields across all regions.

Cox highlights the implications of rate fluctuations on product rates, rental cover, loan size, and purchase percentage, indicating a higher interest rate environment that poses challenges for existing and new landlord borrowers. He remains optimistic about the potential positive impact of falling inflation on the capital markets and anticipates more competitive pricing across Fleet's product range.

In conclusion, the rental property market in England and Wales displays positive growth in rental yields amidst fluctuations in rates and market dynamics. The complex interplay of factors continues to shape the landscape, presenting both challenges and opportunities for investors and borrowers alike. Fleet Mortgages remains committed to supporting its customers and providing tailored solutions to navigate the evolving market conditions.