Annual rental yields have increased for the second quarter in a row in England and Wales, increasing to 6.3% from 5.6% a year ago, Fleet Mortgages has found.

The company’s buy-to-let rental barometer has found that this figure is slightly down on the previous Q1 2023 figure of 6.5%.

Despite the increase, Fleet said increased yields continued as a result of a number of factors, including the ongoing shortage of rental stock leading to higher rental prices, and an easing in house price levels.

All regions in England and Wales saw a year-on-year rise in the latest quarter, with just the North West, Wales, East Anglia and Greater London seeing an increase on the yields achieved in Q1 2023.

The last iteration of the rental barometer introduced a raft of new data, including average rates, loan sizes, landlord portfolio numbers and average rental income by region.

High inflation is continuing to impact on interest rates, with Fleet’s average five-year fixed rate product range increasing to 6.09% from 5.35% in Q1 2023.

However, the lender has said that the larger than anticipated fall in inflation announced this month is already having an impact on swap rates, and as a result, there is a potential for rates to fall over the next three-month period.

Chief commercial officer at Fleet Mortgages, Steve Cox, said: “Quarter two of 2023 was undoubtedly an eventful three-month period and followed a relatively benign first quarter of the year, with significant increases in product rates which had a clear impact across the wider mortgage market but also specifically within buy-to-let.

“However, as our latest rental barometer shows, the fundamentals of the private rental sector across England & Wales continue to be fairly similar, namely a lack of property supply, strong ongoing tenant demand, and house prices continuing to ease. This has meant in every single region in which Fleet lends we have seen an annual increase in rental yields, albeit with a number of regions slightly down on the yields we saw in the first three months of the year.

“Rate fluctuations, caused by sticky inflation, clearly had a major impact, most notably in terms of the rates we could offer – which moved upwards – and in terms of both rental cover at the origination of the loan, plus the average loan size, and the percentage of our business which was purchase. All have been impacted as landlords, and their advisers, have sought product solutions within a higher interest rate environment, and getting over the affordability hurdle remains a significant challenge for all existing and new landlord borrowers. Hence, why we have seen a growing number of lower rate/higher fee products coming to market.”

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