Landlords enjoy booming yields – Paragon

Landlords across the UK are reaping the rewards of a buoyant rental market, with average buy to let yields reaching a peak of 6.72% in September, Paragon Bank reports.

Its data shows this is a big rise from the previous quarter’s 6.69%, and the 6.48% seen last October.

The uptick is attributed to a combination of factors, including stabilised house price inflation and a surge in rental demand due to limited rental stock availability.

The lender says the figures are based on the average BTL property value of £343,356 and rental income of £23,076.

Strong demand for rental property

Russell Anderson, Paragon’s mortgages commercial director, said: “Yield performance has been improving over the past 18 months as house price inflation moderated, but the strong demand for rental property drove rental prices higher.

“We typically see higher yields achieved by more complex buy to let propositions, but strong yields can also be achieved on more basic property types, such as flats and terraced homes.”

He added: “This data is based on offers, so you would expect yield performance to be even better on existing property in landlords’ portfolios, which would have benefited from a longer period of both house price and rental value growth since acquisition.

“Yields are also only one part of the story; the landlord’s specific return on investment will be based on a number of factors, including how they have financed the property, capital gains and also any improvements they make.”

Yields have seen a significant upturn

Since the summer of 2022, rental yields have seen a significant upturn because house price inflation has stabilised and a rise in rents due to limited rental stock availability.

A breakdown of yields by property type reveals that more complex properties have outperformed simpler ones.

Paragon says that houses in multiple occupation (HMOs) continue to lead the pack with an impressive 8.34% yield, followed closely by freehold blocks at 6.66%.

Flats and terraced houses have yielded 6.02% and 5.94%, respectively.

Regionally, the North of England, which includes the North East and Cumbria, has emerged as the most lucrative market for landlords, offering a 8.02% yield.

Wales follows closely with a 7.95% yield.

In contrast, Greater London, despite its high property values, offers the lowest yields at 5.52%.

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