Average rental yields hit 6% in the first quarter of 2021, the highest recorded in three years.

Paragon Bank says that rental yields have climbed by 0.2 percentage points from 5.8% in Q4 2020 and have seen a year-on-year increase of 0.7 percentage points from Q1 2020 when landlords were generating average yields of 5.3%.

Its survey of 900 landlords shows that investors’ ability to generate income depends on where their properties are located; those with lettings businesses in the South West (6.7%) and North East (6.6%) are netting the highest average rental yields, while landlords in Central London continue to achieve the lowest yields of 5.4%, due to higher average property prices in the capital.

There is also a correlation between typical yields and portfolio size. Single property landlords recorded average yields of 5.7%, while landlords who operate portfolios of 20 or more properties reported an ability to generate average yields of 7.1%.

Portfolio

Its research took rental income into account as well as any mortgage, maintenance and other costs associated with running their letting portfolio.

Paragon’s mortgages MD Richard Rowntree (pictured) says: “Rental yields are a key measure for landlords so it’s encouraging to see them indicate being able to generate average yields of 6%.

“The fact that this is a three-year high and is being reported alongside continued high levels of tenant demand suggests that the private rented sector has bounced back well from the Covid-19 pandemic and is actually stronger as a result of providing stable homes for tenants during the challenges of the past year or so.”