Rental yields have increased by 12% over the past year to reach a two-year high, according to Paragon Mortgages' Buy-to-Let Index.
Its research suggests the average rental yield in the UK reached 6.4% in May, an increase of 12% since May 2007.
However, the picture varies considerably between regions, with the North and Wales seeing above average returns, while other parts of the UK experiencing falling yields.
The North of England has an average rental yield of 7.2% according to Paragon, up 18.1% since last year, while Wales has the highest rental yield at 7.6%, up 17% in twelve months.
Greater London was found to have the tightest yields in the UK at just 5.7%, down 3.8% since last year, with the South East in close second with an average yield of 6%.
Paragon’s index reveals the South West continues to perform well, with rental yields at 7%, a 7.9% rise year-on-year, while property values have increased 19.7% to an average of £234,797, second only to London.
John Heron, managing director of Paragon Mortgages, comments: “Strong tenant demand has been pushing up rents, allowing landlords to achieve better yields than they’ve seen for more than two years.
“With lower property prices and higher rents, the yield they can achieve on a carefully selected and well managed investment property can be significantly higher than other forms of investment.”
Paragon’s own mortgage book indicates buy-to-let property values increased 7.5% over the past year, but have experienced virtually no growth in the last six months.
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