A recent report from Paragon Bank unveils a promising trend: landlords are experiencing the highest average gross rental yields since the second quarter of 2018.
According to the data, the average gross rental yield reported by landlords surged to 6.1% in the first quarter of 2024, marking a notable ascent over the past three quarters. This milestone surpasses the 6% threshold, a feat unseen since the conclusion of 2021. The figures harken back to the heyday of 2018 when landlords boasted an average yield of 6.2%.
The report, drawing insights from nearly 800 landlords, sheds light on the underlying factors driving this surge. Notably, Houses in Multiple Occupation (HMOs) emerge as star performers, boasting an average yield of 7.0% compared to 5.8% for single self-contained properties. Richard Rowntree, Managing Director of Mortgages at Paragon Bank, remarks, “Landlords are naturally looking for ways to maximize returns amidst a challenging economic backdrop.”
The allure of HMOs extends beyond mere yield generation. Rowntree underscores their appeal stemming from robust demand for affordable housing, particularly in areas where full property ownership or rental proves elusive for tenants. This rings true amidst soaring rental inflation, accompanied by a stabilization of house prices, thereby contributing to improved yields.
While landlords rejoice at bolstered returns, Rowntree acknowledges the conundrum posed for tenants by escalating rental costs. He emphasizes the pivotal role of addressing the supply-demand imbalance in maintaining rental affordability. A flourishing market, buoyed by profitable lettings businesses, fosters investment in housing stock, thereby expanding choices for renters.
Beyond property types, regional disparities in rental yields emerge prominently. The North East steals the limelight with landlords reaping the highest average yields of 7.0%, trailed closely by Yorkshire & The Humber at 6.6%. Conversely, landlords in London contend with more modest returns, reflective of soaring property prices. Outer London witnesses the lowest average yields at 5.2%, while Central London marginally fares better at 5.7%.
The regional breakdown underscores the multifaceted landscape of real estate investment, where opportunities abound but not without navigating nuanced market dynamics. As landlords navigate this terrain, the report underscores the resilience and adaptability inherent in real estate investment, driving both prosperity for landlords and greater housing options for tenants.