Buy-to-let landlords in England and Wales are reeling from a 0.3 percentage point quarterly drop in average rental yields to 7.8%, according to the latest Buy-to-Let Rental Barometer from Fleet Mortgages, released today. This decline, observed in six out of ten regions, signifies an immediate softening in returns for property investors.
However, a closer examination reveals that the annual picture paints a more resilient market. Compared to the same period last year, average yields have increased by 0.3%, indicating that while recent months have seen some compression, the sector has maintained growth over the past 12 months. This mixed performance underscores the complex landscape landlords are currently navigating, influenced by both market dynamics and legislative changes.
The North East leads the pack once again, delivering the highest rental yields at 9.2%, representing a significant annual increase of 0.5%. However, this also marks a 0.6% decline from the previous quarter. The North West has risen to second place with yields of 8.8%, demonstrating strong performance in northern areas. Other regions maintaining yields above the 8% threshold include Yorkshire & Humberside, Wales, and both the East and West Midlands, reinforcing the trend of northern and Midlands areas generally outperforming their southern counterparts. Conversely, Wales and the South West recorded annual declines in yields.
The data comes at a critical juncture for the buy-to-let sector, with landlords adjusting to new regulatory frameworks. The introduction of the Renters' Rights Act in May has prompted some investors to re-evaluate their portfolios and strategies. Steve Cox, Chief Commercial Officer at Fleet Mortgages, noted that despite these shifts, professional landlords remain active. He highlighted an uptick in purchase activity, with portfolio landlords continuing to expand where opportunities arise, and limited company borrowing remaining the preferred route for most investors.
The findings suggest that while short-term yield compression is evident, the underlying buy-to-let market continues to attract professional investors, particularly those targeting higher-yielding regions. However, the quarterly decline in yields may reflect a broader set of challenges facing landlords, including the impact of recent regulatory changes, rising operational costs, and potential shifts in tenant demand or rental price growth.