Wales recorded a 2.2% increase in rental yields year-on-year, with average yields reaching 8.9% in the fourth quarter of 2023, Fleet Mortgages has found.

In the firm’s latest buy-to-let rental barometer, which covers England and Wales, it revealed that the total average yield across the two countries saw an annual increase of 0.3% on the same quarter in 2022, to 6.9%.

This is also up by 0.1% on the Q3 2023 figure of 6.8%.

In the past two quarters, every region in England and Wales saw some annual yields increases, although the North East, East Midlands and the South West have all dipped slightly in the latest barometer.

As a result of the dip in rental yields in the North East, the region has been knocked off the top spot by Wales, after thirteen consecutive quarters at the top of the barometer.

The North West and Yorkshire and Humberside recorded relatively high rental yields increases of 1.1% annually.

Fleet Mortgages’ rental barometer includes data covering average rates, loan sizes and landlord portfolio numbers.

In the last quarter of 2023, the market saw soft rates drop significantly, which fed into buy-to-let product rates also coming down. Fleet’s product pricing continued to fall in Q4 last year, with the average rate across its range having been 5.74% in Q3, and now down to 5.49% in Q4.

The lender said that it anticipates that this will fall further in Q1 2024, given it has already cut its fixed rate products twice in January. Its average loan size fell in the previous quarter, down from £187,000 to £175,000, with the average rental cover at loan origination also dipping from 177% to 170%.

Chief commercial officer at Fleet Mortgages, Steve Cox, said: “While Q4 differs to the two previous quarters in terms of having three regions showing falls in average annual rental yields, those falls are small, and we have total yield across all those England and Wales regions in which Fleet lends continuing to move upwards, now totalling 6.9%.

"That remains a strong rental yield figure, however in other regions – notably Wales, the North West and Yorkshire and Humberside – rental yields have jumped significantly again, reflecting no doubt a continued lack of supply compared to overall tenant demand.

"Through 2024 we might anticipate rents come off these highs a little, but it’s still likely to be the case that the number of prospective tenants wanting property far outweighs its availability. 2023 was a challenging year, not least in terms of landlords’ ability to add to portfolios given the big increase in mortgage product pricing. That has clearly eased in recent weeks, and we ourselves have seen purchase lending improve, but we are not anticipating a huge improvement in purchase numbers, albeit lower rates and the ability to meet affordability criteria, will allow some landlords to buy."

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