Rental yields soar to 10-year high

Rental yields generated by landlords have hit the highest level since 2014, research from Paragon Bank reveals.

The lender’s latest PRS trends report reveals that landlords saw an average of 6.3% in rental yields during the second quarter of the year.

This figure marks a substantial rebound from the 15-year low of 5.2% recorded in the opening half of 2023.

The current yield level is the most lucrative for landlords since the third quarter of 2014, with only the 6.7% achieved in Q3 2012 surpassing it.

Measure of the health of lettings businesses

Paragon’s managing director for mortgages, Richard Rowntree, said: “Rental yields are a key measure of the health of lettings businesses so it’s fantastic to see them hit a 10-year high after rebounding from the low recorded around this time last year.

“We see that, compared to the wider market, higher yields are reported by landlords who have larger portfolios that include HMOs and are held in limited company structures.

“Each of these attributes is a hallmark of what can be considered professional landlords.”

He added: “While I prefer not to label business owners as amateur or professional, the common theme here is that the ‘professionals’ are the ones employing strategies for success.

“We hear lots about how buy-to-let doesn’t stack up for many landlords, but this is evidence that with the correct strategies, even the challenges of the past year or so can be overcome.

“As an industry, there’s an opportunity for us to educate our customers and help them to run successful businesses whilst making a vital contribution to the UK’s housing provision.”

Responses from nearly 800 landlords

A deeper dive into the data, which is based on responses from nearly 800 landlords, uncovers intriguing patterns.

A correlation emerges between portfolio size and yields, with landlords managing 11 or more properties reporting higher average yields of 6.9%.

Also, those holding all properties within limited company structures also generated yields of 6.9%.

Property type also influences returns, with Houses in Multiple Occupation (HMOs) delivering impressive yields of 7.2%.