Rental yields slip from 0.8% to 5.4% in Q3: Fleet Mortgages

Rental yields fell 0.8% to 5.4% in the third quarter from a year ago, according to Fleet Mortgages, with landlords having to “bide their time to make future investment decisions”.

The North East of England retains its best regional rental yield in England and Wales for the ninth consecutive quarter, down 0.8% on the year in the third quarter to 7.2%, according to the latest specialized lender’s rental barometer. .

Wales moved into second place, rising 0.2% to 6.2%. Yorkshire and Humberside, down 0.6%, and the North West, down 1.2%, both remained in third place with rental yields of 6.5%.

However, the study points out that the overall decline from the second quarter to the third quarter to the end of September, is only 0.1% when yields were 5.5%.

He adds that in the second quarter of the year, rental yields in all regions were down, with each region registering a decline of between 0.1% and 0.9%. But in the third quarter, two regions – Wales and the South West – saw year-on-year increases, up 0.2% and 0.3%, respectively.

The index points out that on a quarterly comparison, Greater London also saw an increase in rental yields – up 0.2% to 4.6% – while the South East was unchanged at 5%.

It says ‘areas that had experienced a quarterly increase in rental yield were doing so due to an acute shortage of rental accommodation, particularly in Greater London’.

Adding, “that the recent increase in the cost of mortgage financing could see new owners leave the private rental sector, which would probably worsen the shortage of properties in these areas”.

The study predicts that “mortgage interest rates will remain elevated due to volatility in two- and five-year swap rates, with lenders left with little choice but to raise product rates to match the ‘increased financing costs’.

The average rate for a two-year fix rose 31 basis points, to 6.47%, the average rate for a five-year fix rose 22 basis points, to 6.29%, according to Moneyfacts last Friday .

Fleet’s report adds that “the rising cost of BTL mortgages – particularly given the recent market turmoil – was expected to have an impact on rental yields, as landlords were unlikely to be able to recover all these higher financial costs via an increase in rents”.

Inflation soared to 10.1% in September from 9.9% the previous month, according to the Office for National Statistics today, pushed by rising food, transport and fuel prices energy – increasing the cost of living for tenants and other consumers.

The Fleet survey says that due to rising interest rates, it expects demand for residential property to fall and expects homeowners to “bide their time when making future investment decisions.” investment, even though tenant demand far exceeds supply and there is a real need for more property from the private rental sector”.

The report comes after new Chancellor Jeremy Hunt this week reversed the vast majority of tax cuts announced in the September mini-budget, although the reduction in stamp duty for home purchases remains.

Last month’s tax statement led to the withdrawal of more than a thousand products as lenders sought to reprice loans as the cost of government and corporate debt rose in international money markets, following of former Chancellor Kwasi Kwarteng’s tax cut tax event.

Steve Cox, Commercial Director of Fleet Mortgages, said: “These new rental yield figures need to be seen in the context of the period they cover – July to September – and what has happened to the mortgage market. since then.

“We now have to consider a very different interest rate environment, the draw of many buy-to-let products following the mini-budget, and lenders having to make tough decisions about product lines and pricing.

“To that end, it is obvious that the cost of rental mortgages has increased, and landlords will need to factor this into their profitability and what they might charge for rent to cover these increased costs. This is not an easy task given the crisis in the cost of living and it is necessary to reconcile the owner’s need to cover the mortgage, with the difficulties that many tenants face.

“That, at least in the short term, is likely to have a dampening effect in terms of buying activity.

“Even though many portfolio owners and professional landlords want to add portfolios and add to the supply available to tenants, the cost of financing these purchases has increased significantly, as has it for existing borrowers who now benefit special rates and require a mortgage or product transfer.

“Our outlook is that rates will remain high in the near term, although we hope recent attempts to calm markets will provide greater certainty for lenders who will be able to get products back on the market, particularly in areas such as than two-year fixed rate loans which have, of necessity, seen their number drop considerably.

Cox adds: “Tenant demand is not going to drop and supply is needed in huge numbers – if borrowing landlords and their advisors can square the financial circle, and we can see a greater degree of competition return to the mortgage market. BTL and more competitive rates, then it is likely that business will improve and owners will continue to secure high returns.

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