According to Paragon’s Private Rental Sector (PRS) Trends report, average yields generated by landlords have not hit 6.3% since the third quarter of 2014. The returns have also not exceeded this since Q3 2012, when they hit 6.7%.
Paragon found that the recent high signified a recovery in yields, which have risen steadily from the 15-year low of 5.2% recorded in Q1 and Q2 last year.
Richard Rowntree, managing director for mortgages at Paragon Bank, said: “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.”
The data, which was compiled by Pegasus Insight and included a survey of nearly 800 landlords, found that yields varied among landlords.
Paragon identified a correlation between portfolio size and average yields, with landlords holding portfolios of 11 or more properties seeing average yields of 6.9%.
Landlords who held their properties in limited company structures also saw average returns of 6.9%.
Houses in multiple occupation (HMOs) also generated higher returns, at an average yield of 7.2%.
Rowntree added: “We see that, 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. Each of these attributes is a hallmark of what can be considered professional landlords. While I prefer not to label business owners as amateur or professional, the common theme here is that the ‘professionals’ are the ones employing strategies for success.
“We hear lots about how buy-to-let doesn’t stack up for many landlords, but this is evidence that with the correct strategies, even the challenges of the past year or so can be [overcome]. As an industry there’s an opportunity for us to educate our customers and help them to run successful businesses whilst making a vital contribution to the UK’s housing provision.”
Speaking to Mortgage Solutions earlier this year, Paragon said the buy-to-let (BTL) market was still a profitable market.
