House prices up but BTL yields down

House prices up but BTL yields down

The average buy-to-let rental yield has fallen by 10% over the last year as rising house prices force down returns for landlords, new research shows.

The latest BDRC Continental Landlords Panel survey, commissioned by specialist buy-to-let lender Paragon Mortgages, found the average rental yield was 6% in Q3, down from 6.7% this time last year.

It also marked a slight drop from 6.1% in Q2. These are gross figures, before any costs are taken into account.

Houses in multiple occupation (HMOs) continued to achieve the highest yields with an average 7.1% in Q3.

Migrant workers and students generated the healthiest yields during the quarter, at 7% and 6.6% respectively.

Despite the drop, John Heron, director of mortgages, claimed that yields are "stable" and attractive compared to returns on cash. "What we are now seeing is less variation in yields across regions which suggests that we are seeing more consistent rental demand across the country.

“Demand from landlords for buy-to-let property has remained high during 2013 and I expect this will continue as we move into 2014.”

The BDRC Continental Landlords Panel survey was completed by more than 1,000 landlords. It also showed that landlords are reporting a more even spread of rental yields across the country.