Recent research indicates a significant rise in rental yields across the UK, reaching levels not seen since 2018, as landlords in the North East and those operating Houses in Multiple Occupation (HMOs) see the highest returns.
Continued Growth in Rental Yields
According to a study conducted by Pegasus Insight for Paragon Bank, average gross rental yields have increased for the third consecutive quarter, reaching 6.1% in Q1 2024. This marks the highest yield since the second quarter of 2018 and represents the first time yields have exceeded 6% since late 2021. Richard Rowntree, Paragon Bank Managing Director of Mortgages, noted, “Against what has been a challenging economic backdrop, landlords are naturally looking for ways to maximise returns.”
The survey, which included responses from nearly 800 landlords, pointed out that Houses in Multiple Occupation (HMO) continue to offer higher yields, averaging 7.0%, compared to 5.8% for single self-contained properties.
Regional Disparities and Property Types
The research highlighted regional variations in rental yields, with the highest averages found in the North East of England at 7.0%, followed closely by Yorkshire & The Humber at 6.6%. In contrast, rental yields in London were more modest due to significantly higher property prices, with Outer London seeing the lowest yields at 5.2% and Central London slightly higher at 5.7%. Landlords in Wales reported yields of 5.6%, marking the second-lowest returns.
Rowntree added, “This is particularly evident at the moment, with high levels of rental inflation. Alongside a stabilisation of house prices, it is likely that this has contributed to improving yields.”
Challenges and Opportunities in the Rental Market
While the increase in yields is positive news for landlords, it comes amidst concerns about rental inflation impacting tenants. Rowntree highlighted the importance of balancing landlord profits with tenant affordability, stating, “While strong yields are good news for landlords, we recognise that this rental inflation poses a very real challenge for tenants so are buoyed by reports of improving levels of housing stock in the sector.”
He concluded, “Addressing the imbalance between supply and demand is central to keeping rents at an affordable level and also means that tenants have more choice when choosing a home. A thriving market, where landlords can operate profitable lettings businesses, is crucial in encouraging investment in this stock and making more homes available for renters.”
This surge in rental yields reflects both the resilience of the UK rental market and the ongoing adjustments landlords are making to navigate economic shifts and tax burdens.
