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Rental yields, tenant demand and profitability
The buy-to-let sector remains an ever-evolving landscape, marked by its share of challenges and political scrutiny. Yet, landlords continue to play a pivotal role in a housing market that depends significantly on the private rented sector to provide quality homes across the UK.
Professional landlords, particularly those with larger portfolios, demonstrate sustained commitment, influenced by factors like high rental yields, strong tenant demand, and consistent profitability.
The recent Q3 2024 Landlord Trends report by Pegasus Insight for Foundation Home Loans highlights these trends, showing a steady rise in average rental yields, reaching a 10-year high of 6.5%. Regionally, landlords in Yorkshire & the Humber recorded the highest yields at 7.6%, while the East of England and Central London reported the lowest at 5.5% and 5.6%, respectively. Higher-than-average yields are also common among HMO and student landlords, with typical yields of 7.1%.
Tenant demand remains robust, with 8 in 10 landlords reporting strong tenant demand in the area(s) where they let. Perceived demand peaked in the South East of England (84% ‘strong’) and was ‘lowest’ in the West Midlands this quarter (60% ‘strong’). Almost 1 in 3 landlords letting property in the North East said that demand was ‘average’.
The report also highlights the strength of ongoing profitability levels, as 87% of landlords report making a profit, with 70% earning smaller profits and 17% reporting substantial gains. Aside from a slight blip in 2023, landlord profitability has remained relatively high and stable over the past 5 years. It continues to be the case that only a small minority of landlord’s report making a loss from the lettings activity, at just 4% on Q3 2024.
These findings help underline the essential role that landlords play in helping to meet rental demands, even during a challenging regulatory and economic landscape.
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