Landlords in the North East achieved the highest average yield at 6.6%, followed by those in the East of England at 6.5%. Central London landlords also enjoyed rental yields above average.

Paragon director of mortgages John Heron said: “The average yield on residential property has remained consistent during 2012. Yields are a critical measure for landlords and would-be landlords in assessing the relative value of an investment in property.

“With returns on cash falling in recent months and continuing high demand for rented property it is not surprising that we are seeing an increase in activity from both new and existing landlords.”

The average rental yields reached a high of 6.7% in Q3, before falling back to an average 6.2% for the final three months of the year.

In Q4, landlords in the East Midlands saw the highest yield at 7.5%, followed by those in central London and the North West.

Last month, Countrywide reported landlords in the Midlands and the North had seen the highest growth in tenant demand.