Analysis found yields had climbed by 0.2 percentage points from 5.8% in Q4 2020 to 6.0% in Q1 2021, representing a year-on-year increase of 0.7 percentage points.

It comes as landlords said they were able to generate average yields of 5.3% in Q1 2020.

Indeed, as part of a survey of just under 900 landlords, carried out by BVA BDRC on behalf of Paragon Bank, landlords were asked what rental yield they currently received. This took into account rental income as well as any mortgage, maintenance and other costs associated with running their letting portfolio.

Location: regional differences

The results demonstrated investors’ ability to generate income was, in part, impacted by where their properties were located.

The highest average rental yields were currently achieved by those managing lettings businesses in the South West (6.7%) and North East (6.6%).

Landlords with property in Central London continued to achieve the lowest yields at 5.4%, due to higher average property prices in the capital.

Paragon also noted a correlation between typical yields generated and portfolio sizes with single property landlords recording average yields of 5.7%, while landlords who operated portfolios containing 20 or more properties saying they are able to generate average yields of 7.1%.

Richard Rowntree, managing director for Mortgages at Paragon said: “Rental yields are a key measure for landlords so it’s encouraging to see them indicate being able to generate average yields of 6.0%.

“The fact that this is a three-year high and is being reported alongside continued high levels of tenant demand suggests that the private rented sector has bounced back well from the Covid-19 pandemic and is actually stronger as a result of providing stable homes for tenants during the challenges of the past year or so.”