Landlords benefit as rental yields hit 13-year high

Landlords have experienced a notable increase in average rental yields, reaching their highest level since March 2011 in the fourth quarter of last year, according to new data.

Paragon Bank, a specialist in buy-to-let mortgages, revealed that average rental yields for landlords climbed to 6.93% in December 2024, a level not seen since February 2011 when yields were at 7.12%.

Based on Paragon Bank’s mortgage offer data for buy-to-let purchases and remortgages, the figures showed an increase from 6.72% at the end of the third quarter of 2024, representing a 30 basis point rise compared to the same period in 2023.

The highest yields of 8.09% were reported by landlords with properties in Wales. This was followed by the North West, where buy-to-let properties generated average yields of 7.84%, and the South West, where landlords saw returns of 7.75%. Landlords with properties in Greater London achieved yields of 5.48%, making it the region with the lowest average rental yields.

Consistent with historical data, properties considered to be complex businesses often delivered the strongest returns on buy-to-let investments. Houses in Multiple Occupation (HMOs) generated the highest yields at 8.40%, followed by freehold blocks at 7.28%, flats at 6.09%, and terraced houses at 6.05%.

Russell Anderson, commercial director of Paragon Bank Mortgages, commented, “A 13-year high in average rental yields is evidence that the market is in much better health than some might believe. Where landlords invest strategically—purchasing in areas with relatively affordable homes and targeting more complex property types—buy-to-let delivers strong returns.”

Anderson added, “Demand has consistently outstripped the supply of privately rented homes for some time. This has caused market rents to rise, helping to sustain strong yields despite house price inflation.”

While yields are a good indicator of the regular income landlords typically see, Anderson emphasized that to get a complete picture of the returns an investment property can generate, factors such as financing, capital gains, landlord deposits, and any property improvements must also be considered.