Landlords have reported average rental yields of 6.3% for the second quarter of this year, according to Paragon’s latest PRS Trends Report. This increase is significant, as yields have not reached this level since the third quarter of 2014. The current figure also surpasses previous high points, with the last peak recorded in Q3 2012 at 6.7%.
The rise in rental yields reflects a robust rental market and positive trends for property investors. This improvement in returns is likely to be encouraging for landlords, highlighting the growing strength of rental income in recent months.
The recent increase in rental yields marks a significant recovery for landlords. After hitting a 15-year low of 5.2% in the first and second quarters of 2023, yields have steadily climbed to the current level of 6.3%. This rise indicates a positive trend and a rebound from the lowest point seen in recent years.
Richard Rowntree, Managing Director for Mortgages at Paragon Bank, highlighted the importance of this development: “It’s encouraging to see rental yields reach a 10-year high. This improvement is a clear sign of a recovering market, especially given the low levels we experienced around this time last year.”
A closer examination of the data, which is based on a survey of nearly 800 landlords, reveals interesting regional variations. These differences offer additional insights into how the rental market is performing across different areas.
There is a notable correlation between the size of a landlord’s portfolio and the rental yields they achieve. Landlords managing larger portfolios, specifically those with 11 or more properties, report an average yield of 6.9%. This figure indicates that having a larger number of properties can contribute to higher rental yields, reflecting potential benefits in managing more extensive property investments.
Furthermore, landlords who choose to hold all their properties within limited company structures also achieve a yield of 6.9%. This suggests that structuring property ownership through a limited company might offer similar advantages in terms of rental returns, compared to managing multiple properties directly.
When analysing the data further, variations in yields by property type become evident. For instance, landlords who own Houses in Multiple Occupation (HMOs) experience the highest yields. The average yield for HMOs stands at 7.2%, demonstrating that this type of property can be particularly lucrative for landlords.
These findings highlight that both the scale of a landlord’s portfolio and the type of property they manage play significant roles in determining rental yields. This information can be useful for landlords looking to maximise their rental returns by either expanding their portfolio or considering different types of properties.
Rowntree explains that the current data shows a clear correlation between higher rental yields and landlords who manage larger property portfolios, particularly those with 11 or more properties. These landlords, often operating within limited company structures, are reporting average yields of 6.9%. This trend underscores the impact of portfolio size and business structure on rental returns.
He further notes that properties classified as Houses in Multiple Occupation (HMOs) are also yielding higher returns, with owners of such properties reporting yields of 7.2%. This data indicates that specific property types can significantly influence overall yield performance, suggesting that HMOs may offer more lucrative returns compared to other types of rental properties.
Rowntree points out that these higher yields are indicative of practices often employed by what can be termed as ‘professional’ landlords. While he prefers not to categorise landlords as amateur or professional, he acknowledges that those who implement successful strategies tend to achieve better results. This observation highlights the importance of strategic management in maximizing rental yields.
He also addresses the common perception that the buy-to-let market is not as profitable as it once was. Rowntree argues that despite recent challenges, the evidence suggests that with the right strategies, landlords can still achieve strong returns. This perspective is crucial for those who might be discouraged by current market conditions.
Rowntree emphasises the opportunity within the industry to educate landlords on best practices and strategies. By helping landlords implement effective strategies, the industry can support them in running successful operations and contribute positively to the UK’s housing market. This approach not only benefits individual landlords but also strengthens the overall housing provision in the country.
Download NOW
4 Simple Steps To Becoming Wealthy Through Property