Landlords have seen a continued rise in rental yields, driven by stabilised house prices and growing rental demand, according to data from buy-to-let mortgage specialist Paragon Bank. The average yield reached 6.72% in September 2024, up from 6.69% in the previous quarter and 6.48% a year earlier.
Complex properties lead in yield performance
The latest data, based on buy-to-let mortgage offers for both purchases and remortgages, revealed that Houses in Multiple Occupation (HMOs) generated the highest average yields at 8.34%, followed by freehold blocks at 6.66%. More traditional property types, such as flats and terraced houses, achieved yields of 6.02% and 5.94% respectively.
According to Russell Anderson, Paragon Bank’s Mortgages Commercial Director, the strong performance reflects broader trends in the rental market:
“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.”
Regional differences in rental yields
Regionally, landlords in the North of England, which includes the North East and Cumbria, achieved the highest yields at 8.02%, closely followed by Wales at 7.95%. At the other end of the spectrum, landlords in Greater London experienced the lowest average yields, at 5.52%, due to higher property values relative to rental income.
The average yield at the end of the third quarter was calculated based on an average buy-to-let property value of £343,356 and an annual rental income of £23,076.
This performance highlights the regional disparities in the rental market, where areas with lower property prices tend to deliver stronger yields.
Yields tell only part of the story
While yields are a key metric for landlords, Anderson pointed out that they are just one aspect of overall profitability. He explained:
“This data is based on offers, so you would expect yield performance to be even better on existing properties 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 any improvements they make.”
Yields have strengthened since mid-2022, as rental prices increased due to limited stock in the market and stabilising house prices. The upward trend in yields is encouraging for landlords navigating a market affected by higher mortgage rates and changing regulations.
Outlook for landlords
With rental yields continuing to rise, landlords are poised to benefit from a market where rental demand outstrips supply. However, challenges such as financing costs and new regulations remain. For investors considering buy-to-let opportunities, understanding regional dynamics and property types will be crucial in maximising returns.
