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Rental yields rocket, topping 6% nationally

Rental yields rocket, topping 6% nationally
Christina Hoghton
Written By:
Christina Hoghton
Posted:
03/05/2024
Updated:
03/05/2024

Average rental yields have hit a six-year high, according to Paragon Bank.

The specialist buy-to-let (BTL) lender said that average gross rental yields have increased for the third quarter in a row.

It added that the average gross rental yield hit 6.1% in the first quarter of this year. This marks its highest level for six years, since the second quarter of 2018.

Where are the highest yields found?

The research highlighted how houses in multiple occupation (HMOs) generate higher rental yields compared to single self-contained properties – 7% versus 5.8% on average.

The study also revealed regional differences in yields achieved.

The highest average yields of 7% were achieved by landlords in North East England, followed by those in neighbouring Yorkshire and the Humber, who reported yields of 6.6%.

Landlords in the capital recorded lower returns. Those in Outer London saw the lowest average yields of 5.2%, while landlords in Central London achieved 5.7%.

Richard Rowntree, Paragon Bank’s 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.

“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.”

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