Yield and tenant demand – two fundamental elements of a successful portfolio

I’d like to drill down into some of the details which have emerged from Q1 2022 for landlords around yield and tenant demand – two fundamental elements in any successful portfolio.

Yield is an interesting one. It remains a balancing act for landlords who are looking to maximise the return of their investments whilst also factoring in rising living costs for their tenants who, like many homeowners, are feeling the pinch in the current economic climate. Yields will obviously differ when it comes to different property types, hence the current demand for holiday lets, short-term lets and HMOs. However, despite their growing popularity, the vast bulk of the BTL market continues to be dominated by the more ‘standard’ longer-term lets, a factor we have to consider when looking at general trends in rental yield.

Staying on this topic, Fleet Mortgages’ latest Buy-to-Let Rental Barometer showed a slight fall in rental yields, down from 6.3% a year ago to a reported figure of 5.7% during the first quarter of 2022. However, this figure did signify a rise of 0.1% when compared to figures for Q4 2021.

On a regional basis, the Northern regions continued to see the highest levels of rental yields across England and Wales. For the seventh consecutive quarter, the North East of England emerged with the top regional rental yield figure, increasing again to 8.7%. However, there was some movement in the places below, with Yorkshire & Humberside and the North West moving into the top three. This was suggested to be due to significant demand being seen in, and around, town and city centres such as Liverpool, Manchester and Sheffield.

This yearly dip is hardly surprising and reflects current economic conditions, although it’s prudent to point out that this still represents a healthy overall yield and helps demonstrate the robust levels of demand being experienced throughout the sector. Speaking of which, recent data from Paragon Bank outlined that strong tenant demand seen over the course of the past year has continued into 2022 with the proportion of landlords reporting a rise in demand reaching an all-time high of 62% in Q1. The 62% of landlords who reported increasing tenant demand is said to be double that of the same period a year ago and almost four times the level reported in Q1 2020 when only 16% of landlords felt that demand was growing.

Analysis of the results on a regional basis highlighted the impressive resurgence of the Central London rental market. Increasing tenant demand was reported by 84% of landlords operating in Central London, a substantial increase on the 12% seen in Q1 2021. This placed Central London alongside the South West and Wales as the regions seeing the highest levels of increasing tenant demand during the previous three months.

This data offers existing and potential new landlords plenty of food for thought and for advisers when it comes to supporting landlords with their refinancing needs. Lenders are operating in a competitive but highly dynamic product/criteria landscape as they are constantly having to readjust their propositions in line with landlord demands and wider economic influencing factors. And this is why the value attached to intermediary advice will continue to rise in Q2 and for the foreseeable future.

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