BTL landlords enjoyed average yields of 6.72% in September, up from 6.69% at the end of the second quarter and 6.48% in the previous year.

Data from Paragon Bank reveals that yields increased in the third quarter of the year - based on the average buy-to-let property value of £343,356 and rental income of £23,076 - continuing their strong performance from mid-2022 when house price inflation stabilised and rents increased due to reduced stock.

HMOs continued to generate the highest yields at 8.34%, followed by freehold blocks at 6.66%, while flats and terraced houses achieved yields of 6.02% and 5.94% respectively. Regionally, landlords in the North of England (the North East and Cumbria) 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%.

Complex

Paragon Bank mortgages commercial director, Russell Anderson (pictured), says higher yields are typically achieved by more complex buy-to-let propositions, but that flats and terraced homes can also produce strong results.

“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,” adds Anderson.

“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.”

MFB director Jeni Browne (pictured) expects more landlords to invest in high-yielding HMOs and convert properties to sharing accommodation due to significant tenant demand from students and young professionals.

She tells LandlordZONE: “With so much negative press around the private rental sector and increasing legislative challenges, it’s encouraging to see hard proof of what we’ve always known: buy-to-let property is a worthwhile and profitable investment.”

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