Yields achieved by buy-to-let (BTL) landlords increased in the third quarter, new data published by Paragon Bank has shown.

Based on mortgage data for BTL purchase and remortgage offers, the average yield hit 6.72% in September, up from 6.69% at the end of Q2 2024, and 6.48% a year previously.

The yield, which is the proportion of rental income against the property value, at the end of Q3 was based on an average BTL property value of £343,356, and rental income of £23,076.

Paragon suggested that yields have strengthened since the summer of 2022 as house price inflation stabilised and rents increased, due to constrained availability of rental stock.

“Yield performance has been improving over the past 18 months as house price inflation moderated, but the strong demand for rental property drove rental prices higher,” Paragon’s mortgages commercial director, Russell Anderson, said.

“We typically see higher yields achieved by more complex BTL propositions, but strong yields can also be achieved on more basic property types, such as flats and terraced homes.”

The data revealed that in terms of property type, more complex property types did achieve the highest yields. Houses in Multiple Occupation continued to generate the highest yields at 8.34%, followed by freehold blocks at 6.66%.

Comparatively, flats and terraced houses achieved yields of 6.02% and 5.94%, respectively.

“This data is based on offers, so you would expect yield performance to be even better on existing property in landlords’ portfolios, which would have benefited from a longer period of both house price and rental value growth since acquisition,” Anderson added.

“Yields are also only one part of the story; the landlord’s specific return on investment will be based on a number of factors, including how they have financed the property, capital gains and also any improvements they make.”

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