Average rental yields hit six-year high

Richard Rowntree interview 920x518.jpg

  • Average gross rental yields increase for third successive quarter
  • Average gross rental yield of 6.1% highest since Q2 2018
  • Highest yields of 7.0% achieved by landlords in the North East and also those with HMOs

The average gross rental yield reported by landlords has reached the highest level since the second quarter of 2018, research carried out on behalf of Paragon Bank has revealed.

After increasing for the third successive quarter, average gross rental yields reported by landlords hit 6.1% in Q1 2024. This is the first time average yields have surpassed the 6% mark since the end of 2021 and the highest since Q2 2018 when average yields of 6.2% were achieved by landlords.

For the research, undertaken by Pegasus Insight, almost 800 landlords were asked about their current gross rental yield. It highlighted how Houses in Multiple Occupation (HMO) have the potential to generate higher rental yields compared to single self-contained properties - 7.0% vs. 5.8% on average.

Richard Rowntree, Paragon Bank Managing Director of Mortgages, said: “Against what has been a challenging economic backdrop, landlords are naturally looking for ways to maximise returns but they are also attempting to mitigate the impact of a tax burden that has increased in recent times. Alongside their yield generation potential, HMOs appeal to investors because of strong demand for affordable homes, particularly in areas where tenants would perhaps not be able to afford to buy or rent a whole property.

“This is particularly evident at the moment, with high levels of rental inflation. Alongside a stabilisation of house prices, it is likely that this has contributed to improving yields.”

He added: “While strong yields are good news for landlords, we recognise that this rental inflation poses a very real challenge for tenants so are buoyed by reports of improving levels of housing stock in the sector. This is because addressing the imbalance between supply and demand is central to keeping rents at an affordable level and also means that tenants have more choice when choosing a home. A thriving market, where landlords can operate profitable lettings businesses, is crucial in encouraging investment in this stock and making more homes available for renters.”

In addition to variation amongst property types, the study also revealed regional differences in yields achieved.

The highest average yields of 7.0% were achieved by landlords in North East England, followed by those in neighbouring Yorkshire & The Humber who reported yields of 6.6%.

Likely influenced by significantly higher than national average property prices, landlords in England’s capital recorded more modest returns. Those in Outer London saw the lowest average yields of 5.2% while landlords in Central London achieved 5.7%, separated by lettings business owners in Wales who reported yields of 5.6%, the second lowest.

Region Average yield (%)
North East 7.0
Yorkshire & The Humber 6.6
East Midlands 6.5
North West 6.3
East of England 6.2
South East (exclusing London) 6.0
West Midlands 6.0
South West 5.8
London (Central) 5.7
Wales 5.6
London (Outer) 5.2

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Tel: 0121 712 2319

Notes to editors:

Pegasus Insight surveyed 771 landlords in March 2024 on behalf of Paragon Bank.

Paragon lends to private individuals and limited companies and provides mortgages suitable for single, self-contained properties, as well as HMOs and multi-unit blocks. Paragon can accommodate higher aggregate lending limits and more complex letting arrangements including local authority leases and corporate leases along with standard ASTs.

Paragon Bank PLC a subsidiary of the Paragon Banking Group PLC which is a FTSE 250 company based in Solihull in the West Midlands. Established in 1985, Paragon Banking Group PLC has over £14 billion of assets under management, helping more than 340,000 customers to achieve their ambitions.

Paragon Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England number 05390593. Registered office 51 Homer Road, Solihull, West Midlands B91 3QJ. Paragon Bank PLC is registered on the Financial Services Register under the firm reference number 604551