Fleet Mortgages, the specialist lender for buy-to-let properties, has published its latest report on rental yields across England and Wales for the first quarter of 2023. The findings demonstrate a noteworthy annual increase in rental yields across all regions. The average yield has hit a record high of 6.5%, up from 6% last year and 6.4% in Q4 2022. The upswing in yields is attributed to a combination of factors, including a scarcity of rental stock, high tenant demand, and a reduction in house prices over the past six months.

For the eleventh consecutive quarter, the North East of England retains its position as the top region for rental yields. Yorkshire and Humberside rank second, with Wales showing a significant 1.1% annual increase. Fleet Mortgages' five-year fixed-rate product rate has decreased to 5.35% from 5.81% in Q4 2022. Meanwhile, the average loan size has increased to £197k, up from £172k in the previous quarter. The average rental income across the regions has also surged to £1,345 per month, up from £1,256 in Q4 2022.

Steve Cox, the chief commercial officer at Fleet Mortgages, expressed his satisfaction with the latest version of their Rental Barometer, stating that it contains a wealth of new data and information about what's happening in the private rental sector. He added, "It's no surprise to see rental yield increasing in every single region in which Fleet lends in England and Wales over the last year, given a combination of factors including lower supply of property, increased tenant demand, house prices falling, and product rates rising."

Cox further stated that regions that have performed well over time continue to dominate the market. However, it's also positive to see other regions delivering stronger yields. Rental incomes are also on the rise on the whole, and this trend is expected to continue. Cox noted that there has been a shift in the buy-to-let mortgage market to accommodate the changing needs and circumstances of landlord borrowers.

Cox pointed out that mortgage product choice, rates, and the like have a lot to answer for, particularly following the mini-budget. Landlord borrowers are likely to deal with its consequences for several years. Initially, there was a move towards tracker products, but it has significantly decreased over the past six months. Instead, there has been a focus on longer-term products, particularly those with higher fees and lower rates, which enable borrowers to overcome some of the higher affordability hurdles that have become prevalent.

Cox predicted that the future is likely to shift back towards a return for two- and five-year product demand. If swap rates continue to decrease, this will be entrenched in the market, with ongoing movement providing lenders with more pricing options, leading to better affordability for longer fixed-rate products.

Cox concluded that the buy-to-let market continues to be dominated by portfolio landlords, particularly as those with only one or two properties struggle to stay profitable due to the increase in mortgage costs. Purchase activity has decreased slightly but remains over a third of Fleet Mortgages' business. This is because portfolio players continue to buy residential property with a long-term investment horizon. Cox stated that he doesn't see this trend tapering off anytime soon.