The top areas for buy-to-let rental yields

Recent years have been challenging for buy-to-let landlords.

Many of the benefits of investing in property were hit by slowing rental growth, tax relief restrictions and lower capital gains tax allowances, as well as increased regulations such as the Renters' Rights Bill.

But the tide seems to be turning.

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New analysis from Paragon Bank has revealed that rental yields reached a 13-year high in December 2024, with the average landlord’s returns reaching a high of 6.93% - good news for buy-to-let property holders.

Rental yields this strong have not been seen since February 2011, when they were at an all-time high of 7.12%.

The new data marks the continuation of a trend of rising rental yields since the middle of 2022 when house price inflation started to stabilise while rents kept increasing. This occurred because tenant demand for housing outstripped the supply of houses available for rent.

The area of the UK that saw the highest rise in rental yields for buy-to-let landlords was Wales where they grew to 8.09%. The North West is also showing strong growth as rental yields climbed by 7.84%.

Landlords in London, however, have seen the slowest rental yields, sitting at just 5.48% - the lowest in the country.

The type of property that is returning the highest rental yields are Houses of Multiple Occupancy (HMOs) which generated yields of 8.40%, according to Paragon Bank.

Behind HMOs were freehold blocks at 7.28%, flats at 6.09% and terraced houses 6.05%.

Paragon Bank Mortgages Commercial Director Russell Anderson said a 13-year high in average rental yields is evidence of the market being "in much better health" than some would suggest.

He added: “Where landlords invest strategically, purchasing in areas where homes are relatively affordable and targeting more complex property types, buy-to-let delivers strong returns.

"A key component of this is demand, something that has outstripped the supply of privately rented homes for some time. This has caused market rents to rise which, in turn, has helped to sustain strong yields despite house price inflation.

“While yields are a good indicator of the regular income that landlords will typically see, to get a complete picture of the returns an investment property can generate, we must also take into account aspects such as how they are financed, capital gains, landlord deposit and any improvements that have been made."

Anderson said now could be a good time to look into buying-to let, provided prospective landlords are happy to deal with the administration.

The UK's buy-to-let hotspots

With rental yields increasing across the country, it could be worth getting an idea of where rent has grown the most in the UK.

Data from Zoopla published in January 2025 shows this, illustrating how demand for housing is high across the country, but tenants can only afford so much when it comes to rental increases.

The analysis suggests the impetus for rental inflation is generally being driven from markets with lower rental values.

In London, rents were between 3% and 6% higher as of the end of 2024 in lower-value areas.

For example, annual rental growth was 5.9% in Havering and 5.2% in Barking and Dagenham.

Outside of London, rents are rising fastest in Rochdale at 11.9% annually, according to Zoopla, followed by Blackburn, Birkenhead, Burnley and Newcastle.

Double digit growth is still possible in Belfast, which saw average rents rise 11.5%, according to Zoopla, while rental growth was at 8.7% in Newcastle and 6.5% in Liverpool.

Will rents rise or fall in 2025?

Rents aren’t expected to drop nationally as the imbalance between supply and demand continues.

While the number of homes available to rent finished the year 12% higher, Zoopla doesn’t expect any big increase in the number of homes for rent over 2025.

The number of homes for rent remains below pre-pandemic levels in all regions apart from the East Midlands.

Richard Donnell, executive director at Zoopla, said: “Private renters moving home have faced rents rising faster than earnings over the last three years.

“The number of rented homes hasn't grown since 2016 creating scarcity for renters at a time when demand has boomed on a strong labour market and the rising cost of home ownership. Rental growth has slowed but we expect an ongoing lack of rental supply to keep an upward pressure on rents.”

Rightmove is predicting that average newly advertised rents will rise by 3% outside of London, and 3% in London by the end of 2025.

Tim Bannister, Rightmove’s property expert, said: “There are two competing factors influencing rental price changes right now.

“The ongoing imbalance between supply and demand is putting upwards pressure on prices. On the other hand, rent rises outpacing wage growth over the past five years has stretched affordability to extreme levels, and is showing in the increasing number of price reductions.

"Whilst at a top-level, we’ve seen overall improvements in the balance between supply and demand, agents tell us they are still extremely busy and having to manage high volumes of tenant enquiries.

"We’re therefore likely to see a more normal figure of around 3% growth in newly advertised rents next year.”