Average rental yields improved across most regions in England and Wales, with a collective 0.6% rise to 7.4% in Q4, analysis from a lender found.
The Fleet Mortgages Rental Barometer for the last quarter of 2024 showed that all recorded regions enjoyed an increase in average rental yields except for the West Midlands, where this dropped by 0.5% annually to 7.1%.
The strongest growth in rental yields was seen in the North West, rising from 8% in 2023 to 9.3% by the end of last year. This was also the region with the highest average rental yield.
It was followed by the East Midlands, with a 1.2% growth to an average of 7.7%, and Yorkshire and the Humber, where average yields improved by 1% to an average of 8.6%.
Greater London had the lowest average rental yield of 5.8%, which was slightly higher than the average of 5.6% during the same period a year earlier.
The average rental yield in Wales was 8.2%, 0.5% better than in 2023.
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Fleet said rental yields were “almost universally positive” compared to the previous year, but when compared to the previous quarter, Greater London, the North East and the West Midlands all saw reducing yields.
In Q4, the highest average monthly rent per property was seen in Greater London at £2,056, followed by the South West at £1,734.
The North East had the most affordable rent, coming to an average of £406 each month.
Interest from portfolio and first-time landlords
According to business submitted to Fleet, applications from landlords with 6-14 buy-to-let (BTL) properties increased from 30% in Q3 to 34% in Q4.
There was also an uplift in applications from first-time landlords, which increased from 10% to 11% over the same period.
Fleet recorded a quarterly reduction in its average two-year fixed rate for a 75% loan to value (LTV) product, which fell from 5.02% to 4.71%. Meanwhile, the average for its five-year fixed rate declined from 5.24% to 5.11%.
The lender said it expected average interest rates to continue falling this year.
Average two-year fixed rates across its lender peers fell from 5.34% to 5.33%, Fleet noted, while the typical five-year fixed rate rose from 5.35% to 5.45%.
The average loan size provided by Fleet increased from £196,000 to £202,000 from Q3 to Q4, with the average rental cover at loan origination also rising from 176% to 182%. The lender said this indicated an improvement in monthly rents and affordability.
Applications for purchases increased quarter-on-quarter from 43% to 44%. Meanwhile, 79% of applications submitted to Fleet were from limited company borrowers, up from 77%, and applications from individual borrowers decreased from 23% to 21%.
Positivity in the BTL market
Steve Cox, chief commercial officer at Fleet Mortgages, said: “There is certainly a greater degree of positivity around the BTL market now than at this time last year, even with the Budget decision to increase stamp duty surcharges for landlord purchasers.
“Our Rental Barometer reflects that optimism over the last quarter of 2024, with average rental yields – on the whole – continuing to improve, albeit at a slightly slower rate, but also in terms of Fleet’s figures for average monthly rents, average rates, average loan sizes, rental cover, and application numbers for property purchases.”
He said many landlords were waiting for announcements in the Budget before making decisions, but they now had certainty and could plan accordingly.
Cox added: “In our view, all of this points to a more positive market for buy to let in 2025, especially if we see rates fall steadily, as anticipated, while at the same time, tenant demand remains strong, while the supply of properties in the private rental sector is still not enough to meet this demand.
“Our views are clearly shared by others in the marketplace, most notably the Intermediary Mortgage Lenders Association (IMLA). Its recent review of 2024 and preview of 2025 paints an encouraging picture for BTL, with an estimate of £33.2bn of gross lending in 2024, which would be 10% up on 2023.”
He said: “Its outlook for the future is also positive, predicting £38bn of buy-to-let gross lending this year and up again to £42bn in 2026, arguing this improvement will come from greater landlord activity fuelled by lower rates, improved affordability, and a continuation in strong rental yields.
“Overall, as we begin 2025, our expectation is for a strong year of lending activity and business, with a higher degree of demand, both from established landlords and – encouragingly – from first-time borrowers.”
