Buy To Let yields rise for HMOs and company landlords

Landlords generated average rental yields of 6.3% in the second quarter of the year, research for Paragon’s latest PRS Trends Report has revealed.

The report shows that average yields have not hit 6.3% since the third quarter of 2014 and have not surpassed the current level since Q3 2012, when they reached 6.7%.

The current high marks a recovery in yields achieved by landlords, which have climbed steadily from the 15 year low of 5.2% recorded in the first and second quarter of 2023.

Richard Rowntree, Managing Director for Mortgages at Paragon Bank says: “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.”

Drilling down into the data, compiled from a survey of almost 800 landlords, reveals some interesting variation.

A correlation can be seen between portfolio size and yields, with higher average yields of 6.9% reported by landlords with larger portfolios of 11 or more properties. Yields of 6.9% were also generated by landlords who hold all of their properties in limited company structures.

A similar divergence can be seen when data is split by property type, particularly HMOs, whose owners report yields of 7.2%.

Rowntree adds: “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 overcame. 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.”