Fleet Mortgages’ Q2 Rental Barometer reveals only a ‘slight softening’ in rental yield

Fleet Mortgages, the buy-to-let specialist lender, has today launched the second iteration of its Buy-to-Let Rental Barometer covering Q2 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 Q2 2020 and Q2 2019.

Overall, the Barometer shows rental yields on residential buy-to-let properties of 5.3% across England, easing down 0.4% from 5.6% achieved in the second quarter of 2019. The North West of England posted the top rental yield regional figure for the quarter, up 0.6% year-on-year to 7.6%, while the East Midlands posted the biggest year-on-year fall of 2.1% down to a 4.4% yield from 6.5% last year.

Whereas Fleet Mortgages’ first iteration of the Buy-to-Let Rental Barometer – covering Q4 2019, compared to Q4 2018 – showed only one region – the North West – with a drop in rental yield over the period, this time there have been over 1% falls in the North, Yorkshire & Humberside, and East Midlands, with smaller falls posted in the South West, East Anglia and Greater London.

The three regions to post positive rental yields over the period are the North West, West Midlands and the South East.

Fleet said that the overall data represented softer rental yields across England but with little signs of immediate falls.

It did however suggest caution was required in terms of predicting future rental yield levels as valuers had only been valuing physical properties for just over five weeks – since the easing of the lockdown restrictions in England – and Government intervention in the form of furlough support, and the current moratorium on evictions, may mean the full extent of the impact of COVID-19 pandemic on rental demand and yield is not yet visible.

The Q2 figures do not include Wales as different lockdown rules applies and no meaningful data is available to provide a robust rental yield figure.

Steve Cox, Distribution Director of Fleet Mortgages, commented: “While we are very early into the post-lockdown ‘new normal’ the latest iteration of our Quarterly research appears to show a more promising picture for rental yield, than some might have predicted, with what we might describe as only a slight softening compared to the previous year.

“The economic backdrop may appear somewhat bleak at present, but this might change quickly depending on the type of recovery we get, and certainly at the moment our latest figures do not suggest sharp falls in rental yield. This may well be as a result of pent-up demand and more households being formed as a result of the lockdown, but it’s clear that more data will be required and it will be interesting to see whether this trend will be maintained into the rest of the year.

“Clearly, we will need to take into account the tailing-off of the furlough scheme and how this impacts on the level of unemployment in the country, the ability of existing tenants to keep paying their rent, and the re-introduction of evictions and repossessions at the end of the year, to get a clearer picture of where rents and yields are heading.

“What we do know, as a result of our experience through the Credit Crunch and the recession that followed, is rents are not as susceptible to these economic hits as property prices. Occupants are much more likely to opt for shorter-term financial commitments offered by renting in such circumstances, rather than move to longer-term property ownership.

“That being the case, and while the rental market outlook has undoubtedly weakened, we are hopeful that tenant demand will be maintained and even strengthen, and that with a relative shortage of properties to choose from, this will ensure rental levels and yield improve.

“At Fleet we are certainly seeing growing levels of interest from professional landlords adding to portfolios and that borrower demographic appears even more committed to property investment, which is good news for advisers active in this space.”