Average gross rental yields came to 6.1% in the first quarter of the year, the highest average since Q2 2018, research from a lender showed.
A study from Paragon Bank revealed that average rental yields had increased for the third consecutive quarter, and this was the first time yields exceeded 6% since the end of 2021.
The research was carried out by Pegasus Insight for Paragon Bank and nearly 800 landlords were polled.
The study revealed that houses in multiple occupation (HMO) could generate higher rental yields on average compared to single self-contained properties.
This represented an average rental yield of 7% for an HMO compared to 5.8% for a single self-contained property.
Regional differences in rental yields
As well as identifying a difference in the potential rental yield based on property type, Paragon Bank’s research also showed this varied across regions.
The highest average rental yield was recorded in North East England at 7%, followed by neighbouring region Yorkshire and the Humber, which had an average of 6.6%
The lowest average rental yield was found in Greater London, at 5.2%. Wales had the second-lowest yield at an average of 5.6%.
HMOs ‘appeal to investors’
Richard Rowntree, managing director of mortgages at Paragon Bank, 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.”
Related: Average rent price hits record high for the 17th consecutive time
