Gross rental yields for UK landlords have climbed to their highest point in 15 years, according to the latest mortgage data from Paragon Bank.
The bank reported an average buy-to-let yield of 7.22% in the third quarter of this year. This compares with 7% in the previous quarter and 6.94% during the same period last year.
Paragon linked the continued improvement since 2022 to relatively slow house price growth and sustained demand for privately rented accommodation. Together, these conditions have helped rental income keep pace with property values, improving potential returns for landlords.
Rental Income Supports Yields as House Price Growth Slows
Louisa Sedgwick, Paragon’s managing director of mortgages, said the latest figures highlighted the returns that landlords could achieve through well-managed rental properties.
She explained that yields are influenced by the relationship between property prices and rental income. While house price growth has remained subdued, demand for rented homes continues to support the market in many areas.
Sedgwick also emphasised the importance of researching local conditions before investing. Locations with lower property purchase costs and consistent tenant demand can offer stronger rental returns, with the East Midlands and northern regions among the areas performing well.
East Midlands Records the Highest Regional Yield
The East Midlands topped the regional rankings, recording an average gross yield of 8.10% for landlords purchasing or remortgaging properties. This was an increase of 0.55 percentage points compared with both the previous quarter and the same period last year.
The North East followed with an average yield of 8.02%, while Scotland recorded 7.95%. The North West completed the top four, achieving 7.88%.
Greater London continued to deliver the lowest regional yield, at 5.79%. However, the figure still improved by 0.23 percentage points over the quarter.
The regional differences underline how purchase prices and local rental demand can influence the potential income generated by an investment property.
HMOs Continue to Deliver the Strongest Returns
Houses in multiple occupation (HMOs) achieved the highest average yield of all the property types surveyed, at 8.80%. Although this represented a slight decline from the previous quarter, the figure remained above the level recorded a year earlier.
Multi-unit blocks ranked second at 7.36%, followed by flats at 6.66% and terraced properties at 6.46%.
Flats recorded the largest annual improvement among the property types included in the analysis, with yields increasing by 0.40 percentage points.
Detached houses produced the lowest average yield, at 4.77%. Bungalows recorded 5.23%, while semi-detached homes achieved 5.75%.
The findings suggest that rental yields can vary considerably depending on both the location and type of property. Landlords considering new investments should therefore assess local rents, purchase prices and ongoing costs rather than relying on national averages alone.
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