Fleet Mortgages' Q4 Rental Barometer shows impact of rising house prices on yield
14 January 2021
Fleet Mortgages, the buy-to-let specialist lender, has today (14th January 2021) launched the fourth iteration of its Buy-to-Let Rental Barometer covering Q4 2020 rental yields across England.
The regional snapshot covers all the areas in which Fleet lends in England and highlights the rental yield changes that have occurred in each region. In this iteration, the yearly comparison is between Q4 2020 and Q4 2019.
|
Average Rental Yields |
y/y change |
||
|
Region |
2019 Q4 |
2020 Q4 |
|
|
North East |
9.4% |
7.9% |
-1.5% |
|
East Midlands |
6.7% |
6.9% |
0.2% |
|
North West |
7.0% |
6.6% |
-0.4% |
|
West Midlands |
6.9% |
6.4% |
-0.4% |
|
Yorkshire and Humberside |
6% |
5.7% |
-0.3% |
|
South West |
5.4% |
5.5% |
0.1% |
|
East Anglia |
5.7% |
5.3% |
-0.4% |
|
South East |
5.3% |
5.0% |
-0.3% |
|
Greater London |
5.1% |
5.0% |
-0.1% |
|
England (Total) |
6.0% |
5.7% |
-0.3% |
Overall, the Barometer shows rental yields on residential buy-to-let properties of 5.7% across England, down 0.3% from the 6% achieved in the fourth quarter of 2019, and down 0.7% from the 6.4% achieved in Q3 2020.
For the second quarter running, the North East of England posted the top rental yield regional figure of 7.9% however this was down 1.5% on the year previously and down on the 8.8% yield posted in Q3 last year.
Only two regions of England posted positive rental yields over the period – the East Midlands and the South West.
Fleet said the overall data showed a relatively stable picture however increases in property prices in many regions of the country had impacted on the rental yields now being achieved. In the last iteration of the Rental Barometer, seven regions posted an increase in rental yields.
The lender however said the demand for private rental sector remained strong fuelled by the formation of more new households, as a result of the pandemic, and occupants continuing to opt for the shorter-term financial commitment offered by renting than the cost and longer-term commitment that comes with property ownership.
Fleet also provided an analysis of portfolio landlord activity – those landlords who own four or more properties with a buy-to-let mortgage – during the quarter. It said the typical portfolio landlord has eight properties in their portfolio, generating an average rental yield of 5.7%.
The data suggests portfolio landlords were more inclined to purchase property during the fourth quarter of last year, compared to the same quarter in 2019. In the previous year, 25% of portfolio landlords purchased, however this increased to 38% last year. It said the increase in purchasing is likely due to the Stamp Duty Land Tax reductions which have been applied until March 2021 inclusive.
Fleet’s data also suggests a rise in property purchases via limited companies; in Q4 of 2019, half of all purchases by portfolio landlords were through a limited company, while this increased to 67% in the same period in 2020. This again is likely due to tax relief provided in a limited company structure.
As with Q2 figures, this Q3 iteration of the Barometer does not include Wales as different lockdown rules apply and no meaningful data is available to provide a robust rental yield figure.
Steve Cox, Chief Commercial Officer at Fleet Mortgages, commented:
“One of the key themes of 2020 was the post-lockdown house price increases that we saw right across the country, particularly with pent-up demand being unleashed, the supply of properties to market still relatively low, and policies like the stamp duty holiday which, in many cases, produced savings which ultimately were utilised by purchasers in higher offers.
“Those house price increases have undoubtedly resulted in a dampening of rental yields in almost all the regions Fleet lends in. However, in both the East Midlands and the South West we still saw yearly increases, and both the East Midlands and Greater London posted quarterly rises.
“The point to make however is that rental yields are still holding up well, with every single region showing yields of 5% and above, plus we also envisage that these types of figures are unlikely to drop significantly throughout the rest of 2021.
“Demand for private rental property remains strong and, coupled with a lower supply level in most parts of the UK due to the lack of social housing available, the options for many tenants lie purely in the private rental space.
“The research also shows that landlords, in particular portfolio landlords, have looked to take advantage of the stamp duty holiday. We saw an increase in purchase activity in the second half of last year, and the focus is now on ensuring those purchases complete before the deadline finishes at the end of March.
“Overall, the outlook for the private rental sector remains positive, and if there is a slight correction in terms of pricing in 2021, we anticipate that professional landlords will seek to add to portfolios in order to meet the increased demand from tenants.”
Fleet Mortgages’ product guide and full list of lending criteria is available to view by visiting its new website at: www.fleetmortgages.co.uk
