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Rental yields, tenant demand and landlord expectations
Despite challenges across the buy-to-let market, it’s always encouraging to see landlord’s ongoing commitment and desire when it comes to maintaining profitability and expanding their portfolios.
This commitment is particularly strong among professional landlords with larger holdings, and is largely driven by key trends such as historically high average rental yields, strong tenant demand and rising landlord expectations
As evident in the latest Q2 2024 Landlord Trends report by Pegasus Insight for Foundation Home Loans which showed that the average achieved yield continues to trend upwards and is now sits at a 10-year high of 6.3%.
Regionally, landlords in the North East currently generate the highest average yields, at 6.8%, whilst landlords operating in Central London achieve the lowest, at 4.7%. HMO owners and those letting to students also generate above average yields, at 7.2% and 7.0% respectively.
The report also highlighted the strength of tenant demand, with 40% of landlords rating current demand in their areas as being 'very strong' and 42% saying it was 'strong.' Although largely ‘strong’ across the board, perceptions of tenant demand vary regionally, with landlords operating in Wales currently reporting the strongest levels of demand and landlords in the West Midlands the ‘weakest’ levels of demand in comparative terms. Furthermore, rental arrears are trending downward, currently at 28%, which is about 30% lower than five years ago.
Furthermore, landlord expectations for the next three months are far more positive than this time last year across four key metrics. Breaking this down, overall letting business expectations classed as being ‘good/very good’ rose to 37% in Q2 2024 compared to 22% in Q2 2023. Good/very good expectations in regard to rental yields also increased year-on-year to 36% from 33%, as has capital gains expectation - up to 19% from 18% previously - and also regarding the prospects for the UK economy, up from 4% to 7%.
In addition, unleveraged landlords continue to be more upbeat than their leveraged counterparts about the prospects for their own lettings business overall, while landlords looking to sell in the next year tend to be less positive across all lettings related measures.
In summary, these trends indicate that current buy-to-let market continues to offer significant opportunities for mortgage intermediaries to grow their business and assist landlords in navigating this ever-evolving landscape.
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