Yields achieved by landlords increased in the third quarter of 2024, continuing their strong performance since mid-2022, according to data from buy-to-let mortgage specialist Paragon Bank.
The average yield reached 6.72% in September, up from 6.69% at the end of the second quarter and 6.48% a year earlier.
The yield, which represents the proportion of rental income to property value, was based on an average buy-to-let property value of £343,356 and an annual rental income of £23,076.
Yields have improved since summer 2022 due to stabilised house price inflation and rising rents caused by limited rental stock.
By property type, houses in multiple occupation generated the highest yields at 8.34%, followed by freehold blocks at 6.66%. Flats and terraced houses yielded 6.02% and 5.94%, respectively.
Regionally, landlords in the North of England achieved the highest rental yields at 8.02%, followed by Wales at 7.95%. Landlords in Greater London saw the lowest yields at 5.52%.
Russell Anderson, commercial director at Paragon Bank Mortgages, 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.”
Anderson 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.”
