Landlords across the UK are currently experiencing the most fruitful period in six years in terms of rental returns. According to the latest research by Paragon Bank, the average gross rental yield has climbed to a robust 6.1% in the first quarter of 2024. This marks the third consecutive quarter of yield increases and is the highest figure recorded since the second quarter of 2018, when yields peaked at 6.6%.

Paragon Bank’s study, which gathered insights from nearly 800 property owners, highlights that not all rental properties are created equal. Properties in multiple occupation (HMOs), which house several tenants under one roof who share facilities, are proving to be particularly lucrative, boasting an average yield of 7%. In comparison, yields from single self-contained units stand slightly lower at 5.8%.

Maximising Landlord Returns

Richard Rowntree, the managing director of mortgages at Paragon Bank, shared his perspective on the current landscape. “Amid a challenging economic climate, landlords are not just passively collecting rent; they’re actively seeking ways to enhance their returns. This drive is partly in response to the increasing tax burdens they face,” he explained. Rowntree pointed out that HMOs are particularly attractive to investors not only for their higher yields but also because they offer more affordable housing options in areas where tenants might struggle to rent or purchase an entire property on their own.

Regional Yields

The benefits of property investment vary significantly across regions. The North East of England is currently the leader with impressive yields of 7%, closely followed by Yorkshire and the Humber at 6.6%. Contrastingly, London presents a tougher market for property owners, where yields are notably lower—5.2% in outer London and 5.7% in central London. These figures reflect the high property prices typical of the capital, which tend to dampen rental yields.

Wales finds itself just above London in the yield rankings, with average returns of 5.6%.

The Bigger Picture

While landlords are seeing favorable returns, Rowntree acknowledges the challenges this poses for tenants, particularly in terms of rental inflation. However, he remains optimistic due to improvements in the housing stock, which can help balance supply and demand. “A healthy balance in the market ensures rents stay affordable and tenants have a variety of choices when looking for a home,” Rowntree stated.