Rental yields reach 13-year peak – Paragon

Private landlords are seeing yields climb to their highest in more than a decade at 6.93%, Paragon Bank reveals.

The lender says that the returns recorded in the final quarter of 2024 are the highest yields since March 2011 when it peaked at 7.12%.

Paragon’s analysis of its mortgage offers statistics for both purchases and remortgages, reflect a notable jump from 6.72% in September 2024.

It also marks a 30-basis point increase compared to the final quarter of 2023.

Average rental yields

The bank’s mortgages commercial director, Russell Anderson, said: “A 13-year high in average rental yields is evidence of the market being in much better health than some would have you believe.

“Where landlords invest strategically, purchasing in areas where homes are relatively affordable and targeting more complex property types, buy to let delivers strong returns.”

He added: “A key component of this is demand, something that has outstripped the supply of privately rented homes for some time.

“This has caused market rents to rise which, in turn, has helped to sustain strong yields despite house price inflation.”

Yields have been rising

Paragon says that yields have been rising since mid-2022 and this is down to stabilising house prices and growing rents – the shortage of PRS homes and strong tenant demand also helps.

Wales emerges as the top returns performer, with landlords there securing an 8.09% return.

Close behind is the North West which delivered 7.84%, while the South West offered 7.75%.

In contrast, Greater London lagged, with landlords seeing a modest 5.48%, the lowest across the UK.

HMOs lead the pack

Property type played a significant role too, Paragon says, with Houses in Multiple Occupation (HMOs) leading the pack with 8.40%, followed by freehold blocks at 7.28%.

Flats and terraced homes trailed with 6.09% and 6.05%, respectively, reinforcing the appeal of more intricate investments.

Mr Anderson said: “While yields are a good indicator of the regular income that landlords will typically see, to get a complete picture of the returns an investment property can generate, we must also take into account aspects such as how they are financed, capital gains, landlord deposit and any improvements that have been made.”

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