Rental yields and tenant demand are holding firm for landlords’ property investments, according to the Q4 2022 BVA BDRC Landlord Panel research report.

However, the research also showed that profitability of portfolios was slightly down on the previous quarter.

The study, which comprised 752 online interviews with landlords, was undertaken on behalf of Foundation Home Loans in November and December last year. It revealed rental yields held firm at the tail-end of 2022, softening by just 0.1% to an average of 5.7% across the country, with rental properties in Wales securing the strongest yield figures of 6.4%.

HMO properties went back 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%.

Landlords’ perception 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, on a net basis, demand appeared to have fallen across a number of regions including the North West, West Midlands, the South East and Outer London.

The incidence of voids reported by landlords fell to a historic low with only one in four landlords reporting a property without tenants in the preceding three months. Also, the typical void period fell by an average of 12 days to 70, suggesting it was easier for landlords to fill properties than at any point in the last six years.

Some 81% of landlords said they were making a profit from their letting activity, down 5% on the figure from the previous quarter. However, for those landlords who have four to five properties, 90% said they continued to make a profit. Overall, however, the Landlord Profitability Index fell six points quarter-on quarter, with this result put down to a larger number of landlords now reporting they are ‘breaking even’ financially on their investments.

George Gee, managing director (commercial) at Foundation Home Loans, 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.”