Rental yields and tenant demand are holding firm for landlords’ property investments, new research from Foundation Home Loans has indicated.

The specialist lender’s findings revealed that rental yields softened by just 0.1% to an average of 5.7% across the UK in Q4 2022.

Rental properties in Wales secured the strongest yield figures of 6.4%, while Q4 also saw HMO properties return to the top spot to offer the strongest yield by property type, at 6.4% for the quarter, followed by multi-unit blocks at 6.2%.

Foundation’s research, comprised of 752 online interviews with landlords, was undertaken in November and December last year.

The lender suggested that perception amongst landlords of tenant demand remained stable in the last quarter, with net demand holding firm at 65%. Regionally, Central London landlords reported the highest strength of current tenant demand. However, the research indicated that demand appears to have fallen, on a net basis, across a number of regions including the North West, West Midlands, the South East and Outer London.

Furthermore, 81% of landlords said they were making a profit from their letting activity, down 5% on the figure from the previous quarter, although for landlords who have four to five properties, 90% said they continued to make a profit.

Managing director (commercial) at Foundation Home Loans, George Gee, commented: “There are some very positive fundamentals here, particularly for professional and larger portfolio landlords, in terms of stable rental yields, strong tenant demand, and ongoing profitability of portfolios. However, as we might expect, landlords who have a small number of properties are being hit hardest by the rising cost of letting a property including potentially increased mortgage costs.

“It is for these reasons, and the continued low supply of properties in the private rented sector, that many landlords are likely to raise rents in 2023, as they also seek to realign their properties for the local market, and make sure these properties can continue to make a profit.”

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