Rental Yields For Landlords At Highest Level Since 2018

Landlords are enjoying their highest rental yields in six years, with the average gross yield reaching 6.1% in the first quarter of 2024.

This is the third consecutive quarter of increases and the highest level since the second quarter of 2018 when landlords saw average yields of 6.6%, according to research by Paragon Bank. The study, which surveyed nearly 800 landlords, also found that properties in multiple occupation (HMOs) delivered the highest yields, averaging 7% compared to 5.8% for single self-contained properties.

The bank’s managing director of mortgages, Richard Rowntree, 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.”

Regional variations show significant differences with landlords in the North East enjoying the highest yields at 7%, followed by Yorkshire and the Humber at 6.6%.

London’s landlords, however, saw the lowest returns, with those in outer London at 5.2% and central London at 5.7%.

Paragon says this is down to the capital having higher than national average property prices.

Wales came in second-to-last in the bank’s league table with yields of 5.6%.

Mr Rowntree said “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.”

Best buy-to-let property hotspots in the UK

Choosing the right buy-to-let location could make the difference between raking in high profits and struggling to break even.

New research from lettings and sales agents group Lomond has revealed the top UK buy-to-let hotspots for property investors – and the results may surprise you.

The data shows that across the country, rental markets have witnessed a surge, resulting in the average rental yield creeping up from 4% last year to 4.5%. So, which are the best buy-to-let areas in the UK?

Top buy-to-let property postcodes in the UK
The data reveals that the best buy-to-let property postcode is LS3 of Leeds, which boasts an impressive 12.8% average rental yield. This makes it the strongest location for the British rental market, with average asking prices at around £170,163.

The postcode is situated in the Harehills area, not too far from the city centre and with good connections to public transport services such as bus and railway stations. It’s also in close proximity to several popular tourist hotspots such as Roundhay Park, East Leeds Golf Course, Temple Newsam and Harewood House. The locations covered in this postcode are parts of Gipton and Harehills, East End Park, Gipton Wood, Harehills, Moortown, Potternewton and Seacroft.

In second place comes Bradford’s BD1, meaning Yorkshire takes the top two spots. The BD1 postcode has an 11.8% average rental yield, and an average asking price of just £64,676 – potentially meaning a low investment and high returns for landlords.

Taking the third spot is Manchester’s M14, which has an average rental yield of 11.6%. It has the highest monthly rent and asking prices in the top 10 list, at £2,251 and £232,739 respectively.

Source: Lomond

Highest buy-to-let rental yields by region
When you look at the bigger picture - and analyse regions rather than postcodes - the results are rather different. Scotland is currently home to the strongest rental returns on average at 5.4%, despite only having two entries in the top 10 postcodes tables.

In second place comes the north-east, which has a rental yield of 4.8%, and third is the north-west, at 4.6%. The lowest average rental yield is from the south-east, which is just 3.8%. Interestingly, London ranks fifth, with an average rental yield of 4.3%, though average asking prices for rent are the highest at £1,970 a month. Typical asking prices for properties is a staggering £543,438. This is more than double the average of Scotland, which is £204,223.

Source: Lomond

Postcodes with the biggest increase in average rental yield
If you’re looking for something more promising in the current market situation, the Leeds LS3 postcode could be your best bet. Not only is it the best buy-to-let property postcode but it has also witnessed the largest annual increase in rental yield of 5.6% from last year.

In March 2023, the average yield was 7.23% but it has now rocketed to 12.81%.

Glasgow’s G4 postcode boasts the second-largest increase in the average rental yield, with 2.7% growth.

Next is Nottingham’s NG1, which saw a 2.6% rise in average rental yields in the past year.

Source: Lomond

Is buy-to-let still worth it?
While the government has clamped down on the housing market in the last couple of years with changes to the tax system, Martin Elliot, CEO of Lomond’s Yorkshire brands, advises landlords to be hopeful.

Elliot said “despite the government’s best efforts, buy-to-let investment remains a lucrative endeavour and we’ve seen the average yield on offer increase across all regions of Britain over the last year, with the exception of Scotland where it has remained static. Of course, some areas remain more profitable than others and by breaking the market down at postcode level, you can gain a real insight into where currently offers the strongest returns. While the top 10 postcodes boasting the strongest yields may be confined to the Northern and Midlands regions, that’s not to say there isn’t an abundance of opportunities elsewhere if you know where to look. So while the government may have attempted to lure more landlords away from the rental sector with a cut in capital gains tax, it remains a very good time to invest in rental market bricks and mortar.”