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Rental yields hit 10-year high as landlords brace for market shifts
Average rental yields have reached a 10-year high of 6.3%, and 82% of landlords describe tenant demand as strong, according to the Q2 2024 Landlord Trends report, conducted by Pegasus Insight on behalf of Foundation Home Loans.
The research, which comprised 799 online interviews undertaken between June and July this year, found 60% of landlords borrow to fund their portfolios, holding an average of 5.3 loans, which increases to 14.4 loans for those with over 11 properties in their portfolio.
Over one-third plan to remortgage or undertake a product transfer in the next 12 months, with landlords anticipating they will refinance 2.5 products on average; of those who will be refinancing, 38% have one mortgage to refinance, 34% two, 12% three, 8% four, and 7% have over five mortgages due for maturity in this timescale.
Landlord borrowers owe, on average, £665,000 in total, equating to around £125,000 per buy-to-let mortgage. Total borrowing ranges between £268,000 for non-portfolio landlords – those with one to three buy-to-let mortgages – and £1.16m for portfolio landlords. One in five landlords owe more than £1m.
There were a number of other notable trends to come out of the report. One was the continued increased preference for limited company ownership among landlords, especially for new purchases, with 67% of new acquisitions now held within a company structure.
Of the 10% of landlords who said they intend to increase the size of their portfolio over the next 12 months – with multiple options available to them – 67% said they plan to use a buy-to-let mortgage, 29% to purchase outright, 31% will release equity from existing properties, 10% will borrow using a commercial loan and 5% will use funds drawn from a pension pot.
The incidence of rental increases has tripled in the last four years, with 74% of landlords raising rents in Q2 2024. This trend is driven by increasing portfolio management expenses and rising mortgage finance costs.
The Landlord Trends report also looked at a specific ‘hot topic’ within the private rental sector, and its potential impact on landlords, namely rent controls.
Rent controls and legislative changes, such as the removal of Section 21 (no fault evictions), are high on the agenda for landlords. 55% said rent controls would greatly impact their commitment to renting, and one in three would consider selling their properties if controls were introduced.
Interestingly, according to the report, landlords are less worried about other potential regulatory changes, such as outlawing bans on specific tenant types, compulsory licensing, or abolishing fixed-term contracts in favour of rolling contracts.
Grant Hendry, director of sales at Foundation Home Loans, commented: “Despite a challenging market environment, landlords are finding ways to maintain profitability and expand their portfolios.”
Original article from Property Industry Eye – Jerome Smail.
