Top regions for rental yields from buy-to-let

The 13-year high of 693 percent for rental yields has made buying to let a more alluring option

Where in the UK are the best locations for real estate investments?

In recent years, buy-to-let landlords have faced difficulties.

Slowing rental growth, reduced capital gains tax allowances, tax relief restrictions, and more regulations like the Renters' Rights Bill have all reduced the advantages of real estate investing.

However, it looks like things are changing.

Good news for owners of buy-to-let properties: according to new research from Paragon Bank, rental yields hit a 13-year high in December 2024, with the average landlord's return hitting a high of 6.93 percent.

The last time rental yields were this high was in February 2011, when they reached an all-time high of 712%.

Since mid-2022, when inflation in house prices began to level off while rents continued to rise, the trend of rising rental yields has continued, according to the new data. This happened because there were more renters than there were available homes to meet their demand for housing.

Wales was the region in the UK where buy-to-let landlords' rental yields increased the most, reaching 8.09 percent. With rental yields rising by 7 to 84 percent, the North West is likewise exhibiting robust growth.

However, the slowest rental yields have been experienced by London landlords, with the lowest yield in the nation at 5.48 percent.

Paragon Bank reports that Houses of Multiple Occupancy (HMOs) are the type of property that is yielding the highest rental yields, with yields ranging from 8 to 40 percent.

The percentages of freehold blocks (7.28 percent), apartments (6.09 percent), and terraced homes (6.05 percent) trailed HMOs.

Russell Anderson, Commercial Director of Paragon Bank Mortgages, stated that the market is "in much better health" than some would imply, as evidenced by the average rental yields reaching a 13-year high.

He went on to say: "Buy-to-let yields high returns when landlords make strategic investments, going after more complex property types and buying in neighborhoods with reasonably priced homes.

The fact that demand for privately rented homes has long exceeded supply is a major factor in this. Because of this, market rents have increased, which has helped to maintain high yields in spite of inflation in home prices.

Although yields are a reliable predictor of the consistent income that landlords will normally receive, we also need to consider factors like financing, capital gains, landlord deposits, and any recent improvements to obtain a full picture of the returns that an investment property can produce.

According to Anderson, if potential landlords are amenable to working with the administration, now might be a good time to investigate buying-to-let.

UK buy-to-let cities.

Given the rising rental yields nationwide, it might be worthwhile to determine which areas of the UK have seen the biggest increases in rent.

According to data released by Zoopla in January 2025, there is a high demand for housing nationwide, but rent increases are beyond the means of tenants.

According to the analysis, rental inflation is typically fueled by markets with lower rental values.

In lower-value areas of London, rents increased by 3 to 6 percent by the end of 2024.

For instance, Havering saw a 5point 9 percent annual rental growth, while Barking and Dagenham saw a 5point 2 percent increase.

Rochdale has the highest annual rent increases outside of London, at 11.9 percent, according to Zoopla. Blackburn, Birkenhead, Burnley, and Newcastle are next in line.

In Belfast, where average rents increased by 11.5 percent, double-digit growth is still feasible, according to Zoopla, whereas rental growth in Newcastle and Liverpool was 8 and 7%, respectively.

Will 2025 see an increase or decrease in rents?

Since supply and demand are still out of balance, it is not anticipated that rents will decrease nationally.

Although there were 12% more rental properties at the end of the year, Zoopla does not anticipate a significant rise in rental property availability beyond 2025.

All regions except the East Midlands continue to have fewer rental properties than they did prior to the pandemic.

Over the past three years, rents have increased more quickly than incomes for private renters moving into new homes, according to Richard Donnell, executive director at Zoopla.

There is a shortage of rental properties at a time when demand has surged due to a robust labor market and the growing expense of home ownership because the number of rental properties hasn't increased since 2016. Although the growth of rentals has slowed, we anticipate that there will continue to be a shortage of available rental units, which will drive up rents.

By the end of 2025, Rightmove projects that average newly advertised rents will increase by 3% outside of London and 3% within the city.

According to Tim Bannister, a property specialist with Rightmoves, "Rental price fluctuations are currently influenced by two opposing factors.

"Prices are undergoing upward pressure due to the persistent mismatch between supply and demand. However, over the last five years, rent increases have outpaced wage growth, pushing affordability to the limit and contributing to the growing number of price reductions.

"Although overall supply and demand balance has improved at the highest level, agents tell us they are still very busy and must handle large amounts of tenant inquiries.

As a result, we anticipate a more typical growth rate of about 3% in newly advertised rents the following year.