Landlord yields have seen a steady increase during the third quarter of the year, continuing a robust upward trend that began in mid-2022. This promising development was revealed in new data published by Paragon Bank, a specialist in buy-to-let mortgages.
According to the report, the average yield for landlords reached 6.72% in September 2024. This figure is slightly higher than the 6.69% recorded at the end of the second quarter and represents a notable improvement from the 6.48% reported in September 2023. This consistent growth highlights the resilience of the buy-to-let sector, even in the face of wider economic challenges.
Yields, which are calculated as the proportion of rental income relative to property value, are a crucial indicator for investors in the private rented sector. The third-quarter yield figures are based on an average buy-to-let property value of £343,356 and an average annual rental income of £23,076. These numbers demonstrate how landlords are benefiting from a combination of stable property values and rising rental incomes.
This sustained growth in yields underscores the continued appeal of buy-to-let investment. Despite ongoing regulatory changes and challenges in the housing market, landlords are achieving healthy returns on their investments, driven by strong demand for rental properties. Paragon Bank’s data serves as further evidence that the buy-to-let market remains a lucrative option for those seeking long-term financial returns through property investment.
As yields maintain their upward trajectory, the buy-to-let sector is likely to remain an attractive opportunity for both new and experienced investors, particularly those who are able to adapt to changing market conditions and make strategic investment choices.
Yields in the buy-to-let market have shown significant growth since the summer of 2022, reflecting a stabilisation in house price inflation alongside a surge in rental prices. This increase in rental prices has largely been driven by a constrained supply of rental properties, as demand for housing continues to outstrip availability. The ongoing imbalance between supply and demand has caused rent prices to rise steadily, which in turn has had a positive effect on yields for landlords.
In particular, the rise in yields has been more pronounced in certain property types, with more complex and larger property configurations generating the highest returns. Notably, Houses in Multiple Occupation (HMOs) have consistently outperformed other property types, offering an average yield of 8.34%. This property type, which typically involves renting individual rooms to multiple tenants, benefits from higher rental income due to its ability to accommodate several tenants in one property, making it highly attractive to landlords.
Following HMOs, freehold blocks have also demonstrated strong performance in terms of rental yields, with an average return of 6.66%. Freehold blocks tend to offer a higher degree of control over the property, making them a popular choice for buy-to-let investors seeking long-term returns.
Meanwhile, flats and terraced houses, while still providing solid yields, have recorded slightly lower returns. Flats achieved an average yield of 6.02%, while terraced houses saw yields of 5.94%. While these returns are still competitive, they highlight the variability in the rental market, with property type and location being key factors in determining overall profitability.
These yield variations demonstrate the importance of property selection when it comes to maximising rental returns. Larger, more complex properties like HMOs and freehold blocks continue to offer the highest returns, while smaller properties, such as flats and terraced houses, still remain viable options for those seeking stable but potentially lower yields. The data underscores the evolving dynamics in the buy-to-let market, where property type, supply-demand factors, and local market conditions all play a crucial role in determining a landlord’s potential earnings.
Regionally, the highest rental yields were achieved by landlords in the North of England, which includes the North East and Cumbria. Here, the average yield reached an impressive 8.02%. This is closely followed by Wales, where landlords recorded a yield of 7.95%. The relatively higher yields in these areas reflect a combination of more affordable property prices and increasing demand for rental properties, which is pushing rents up.
In contrast, landlords in Greater London experienced the lowest rental yields, at just 5.52%. This is not surprising given the capital’s higher property prices, which often limit the rental income relative to property value. While London remains an attractive market for buy-to-let investors, its yields are generally lower due to the premium prices associated with properties in the area.
Russell Anderson, the commercial director at Paragon Bank Mortgages, commented on the broader market trends, noting that yield performance has shown steady improvement over the past 18 months. He attributes this improvement to the moderation of house price inflation combined with a strong and persistent demand for rental properties. As rental prices continue to rise due to limited stock availability, landlords in many regions are benefitting from higher yields, despite the varying dynamics across the country.
According to Russell Anderson, Paragon Bank Mortgages’ commercial director, higher yields are often seen in more complex buy-to-let propositions. However, he also points out that strong yields can be achieved with more basic property types, such as flats and terraced homes. This suggests that even straightforward investments can offer significant returns, depending on the right market conditions and property selection.
Anderson further explains that the data provided is based on offers, which means that yields on existing properties in landlords’ portfolios are likely to be even better. These properties would have benefited from a longer period of house price appreciation and rental value growth since acquisition. As a result, landlords who have held their properties for an extended period may see enhanced returns compared to those acquiring new properties.
However, Anderson notes that yields are just one part of the equation. The overall return on investment for a landlord depends on a variety of factors, including how the property was financed, the capital gains achieved, and any improvements made to the property. These elements can significantly influence the profitability of a buy-to-let investment, offering a more comprehensive picture of a landlord’s financial success.
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