UK Landlords Achieve Highest Rental Yields in a Decade: A Positive Sign for Investors

Landlords in the UK have enjoyed a significant boost in rental yields, reaching an average of 6.3% in the second quarter of the year, according to Paragon’s latest PRS Trends Report. This is the highest average yield recorded since the third quarter of 2014 and marks a notable recovery from the 15-year low of 5.2% seen earlier in 2023.

The report highlights that the current yield level is the highest since Q3 2012, when yields peaked at 6.7%. This upward trend is a clear indication of the resilience and potential profitability of the UK's rental market, even in the face of recent challenges.

Richard Rowntree, Managing Director for Mortgages at Paragon Bank, expressed his optimism about the findings, stating, "Rental yields are a key measure of the health of lettings businesses, so it’s fantastic to see them hit a 10-year high after rebounding from the low recorded around this time last year."

Portfolio Size and Property Type Influence Yields

A deeper analysis of the data, collected from nearly 800 landlords, reveals intriguing variations in rental yields based on portfolio size and property type. Landlords with larger portfolios—defined as 11 or more properties—reported higher average yields of 6.9%. Similarly, landlords who hold all their properties within limited company structures also achieved yields of 6.9%.

Notably, properties classified as Houses in Multiple Occupation (HMOs) delivered even stronger returns, with owners reporting yields of 7.2%. This suggests that strategic property investments, particularly in HMOs and portfolio expansions, can significantly enhance rental income.

Rowntree further commented, "Compared to the wider market, higher yields are reported by landlords who have larger portfolios that include HMOs and are held in limited company structures. These attributes are often associated with professional landlords who are implementing successful strategies."

Strategic Success in the Buy-to-Let Market

The findings challenge the notion that the buy-to-let market is becoming less viable for landlords. On the contrary, the data suggests that with the right approach, landlords can continue to thrive, even in a fluctuating market. Rowntree emphasized the importance of education and strategic planning for landlords, stating, "This is evidence that with the correct strategies, even the challenges of the past year or so can be overcome."

He added, "As an industry, there’s an opportunity for us to educate our customers and help them to run successful businesses while making a vital contribution to the UK’s housing provision."

A Bright Future for UK Property Investors

The recent rise in rental yields offers a promising outlook for property investors in the UK. With strategic investment in larger portfolios, HMOs, and limited company structures, landlords can achieve robust returns. This positive trend underscores the resilience of the UK rental market and highlights the opportunities available for those looking to maximize their property investments.

For investors seeking to enter or expand within the UK property market, these findings provide encouraging evidence of potential profitability. With the right strategies in place, landlords can continue to benefit from strong yields and contribute to the ongoing stability of the UK's housing sector.