The days of assuming that yield will look after itself are, well and truly, over. For many years, the rental market felt straightforward, rents were rising, demand was strong, and most parts of the country were moving in the same direction, upwards. This, in hindsight, made things look a lot simpler than they actually were.
Today, we are in a different place.
The latest data from Rightmove shows rents outside London have effectively stood still at £1,370 per month at the start of this year, the first time that has happened since 2017, with around 26% of listings being reduced while live, pointing to growing pressure on affordability. Supply has also edged up by around 3% year-on-year, easing competition slightly in some areas.
While this is not a dramatic change, it does matter. Yield is no longer being lifted by a market rising everywhere. It is becoming far more dependent on location and whether the numbers genuinely work in that specific area.
Put simply, we have moved from “rents rise everywhere” to “income depends on where you are standing.”
Where things are still working
Across the regions of the North East, North West and Yorkshire, yields are still typically sitting in the 7-9% range, with certain pockets pushing beyond that, according to analysis from PropertyData. Cities such as Newcastle, Leeds, Hull and Bradford continue to feature heavily in conversations around income-led or investor-led investment.
The reasons behind this are well-understood. Lower purchase prices assist consistent tenant demand from students and young professionals. This, in turn, supports rental income, and in a number of these areas there is still an ongoing story around regeneration. This positive outlook continues to support demand.
There are also sectors of the market, HMOs being the most obvious example, where returns can look particularly strong, with some properties achieving yields in the 8-10% range in the right circumstances.
Diversification of the housing stock selected for buy-to-let means that the days of pointing to a region and assuming consistent performance across the board are behind us. Increasingly, the useful conversations are less about theory and more about actual cases in terms of what worked, what did not, and why. This can be seen where deals are actually getting done, which is often the best indicator.
Where it is more of a stretch
By contrast, London and the South East continue to deliver lower yields, typically in the region of 4-5.5%, which has long been part of the trade-off associated with those markets.
This frames well how regions perform differently within a portfolio, with these areas often viewed through the lens of capital growth and longer-term positioning, rather than income. In the current rate environment, old norms are being challenged and questioned.
What people are starting to feel
The more interesting development is the pressure on tenant affordability. After a sustained period of rental growth, many tenants are now reaching the upper limit of what they can reasonably pay, and that is feeding through into how properties are priced and how quickly they are let.
Landlords are therefore positioning rents more carefully to secure tenants, rather than relying on steady increases to drive returns, and with borrowing costs still moving in the background, there is only so much flexibility in how those decisions are made.
We are not in a position where rents can continue to rise at the same pace indefinitely. There is clearly an affordability ceiling, and in some parts of the market we are starting to see that come into play.
The Renters’ Rights Bill looms large over any use of rental increases as an immediate lever.
What that does to the broker conversation
From a broker perspective, this puts much greater emphasis on local understanding and detail, because while the core questions from clients have not changed, the way those questions are answered has become more involved.
It is no longer enough to rely on national averages or broad regional trends. Instead, there is a need to look more closely at the specifics of each location, including the depth of tenant demand, the type of tenant a property is likely to attract, the level of supply, and how sustainable the rental income is over time.
The real story here
This is not just about regional yield differences. It is more about considering how buy-to-let performance is being judged as an asset class. More emphasis on sustainability, local dynamics and longer-term viability are strong considerations now, over a simple focus on headline returns.
The gap between higher and lower-yielding areas is ever widening, but so too is the variation within areas and property-type performance.
Interpretation of data, coupled with local knowledge, is more important than ever.
Seeking yield is now underpinned by a need to understand not just the snapshot, but the likely longer-term performance of an area and property type. This level of detail and consideration is where intermediaries and portfolio landlords are wisely investing the one thing we all have little of, time.
