Rental yields rose in May to 6.4%, their highest level since the start of 2006, according to the latest Buy-to-Let Index from Paragon Mortgages.

The firm highlighted landlords’ rental incomes have increased steadily over the past year – rising nearly 12% over the past twelve months and 6% over the past six months. At the same time, property values have risen 7.5% year-on-year, although the past six months have seen an increase of just 0.2%.

John Heron, managing director of Paragon Mortgages, said: “Strong tenant demand has been pushing up rents, allowing landlords to achieve better yields than they have 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. With an average portfolio gearing of just 36%, landlords are well placed to free up equity to expand their portfolios.”

Paragon’s Trends survey of over 200 landlords also revealed falling property prices and rising tenant demand are spurring professional landlords to expand their portfolios, with 74% stating that the ability to get a good deal on properties encourages them to buy, even in the current climate.

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