Rental yields across England and Wales fell to 5.4% in the third quarter, down from 6.2% a year ago.

However, the quarter-on-quarter drop was only marginal, just 0.1% on the previous three-month period when the yield was 5.5%, according to the latest Buy-to-Let (BTL) Rental Barometer from Fleet Mortgages.

In Q2 this year, the rental yield trend across all regions was down with every region of England and Wales seeing a drop in rental yields of between 0.1% and 0.9%. In Q3, however, there were two regions – Wales and the South West – that both registered annual increases, up 0.2% and 0.3% respectively.

Looking at the quarter-on-quarter comparison, Greater London has also seen an increase in rental yields – up from 4.4% to 4.6% - while the South East stayed the same at 5%.

While the Fleet findings showed that the North East of England retained its top regional rental yield figure for the ninth consecutive quarter, Wales has now moved up into second place, while Yorkshire and Humberside, and the North West remaining joint third.

Fleet said these regions which had seen a quarterly increase in rental yield were doing so because of an acute shortage of rental accommodation, particularly in Greater London.

Furthermore, the BTL lender said it is also anticipating that the recent increase in the cost of mortgage finance might see further landlords exiting the private rental sector which was likely to “exacerbate” the shortage of property in those regions.

Chief commercial officer at Fleet Mortgages, Steve Cox, noted that the latest set of rental yield figures should be viewed in the context of the period they cover – July through September – and what has happened to the mortgage market since.

He commented: “It is clearly positive that a number of regions have seen a quarter-on-quarter increase in yields, and that the figure for England and Wales is down only very slightly on the Q2 2022 results. Tenant demand remains very strong right across the country, and in a number of regions, the supply of property available within the private rental sector is not enough to satisfy this.

“However, we now have to take into account a very different interest rate environment, the pulling of many buy-to-let products following the mini-Budget, and lenders having to make difficult decisions around product ranges and pricing.

“To that end, it’s an obvious point to make that the cost of BTL mortgages has increased, and landlords will need to factor that into their profitability and what they might charge for rent in order to cover these increased costs. This is not an easy task given the cost of living crisis and there is a need to marry up the need of the landlord to cover the mortgage, with the struggles being faced by many tenants.”

“This, at least in the short-term, is likely to have something of a dampening effect in terms of purchase activity.”

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