Houses in Multiple Occupation (HMO) in London are generating the lowest yields in Britain, data from Paragon Bank reveals.

The stats from the buy-to-let specialist, based on applications, show that Welsh HMOs top the tables – producing an average yield of 9.01%.

This is generated from an average £29,100 rental income and an average £322,000 valuation.

Yorkshire & Humber comes in at second place on the list, with landlords in the region generating a yield of 8.61% on HMOs. The North West is in third spot at 8.33%.

The research shows that HMOs in five British regions generate a yield of more than 8%.

However, London is bottom of the regional HMO yield table, generating 6.13% from rental income of £52,900 and an average property value of £863,000.

Paragon says yields on HMOs are usually higher than other property types as they are let on a per-room basis but are typically more expensive to run due to increased maintenance costs.

A property is classed as an HMO if at least three tenants live in the property, forming more than one household, and sharing a toilet, bathroom or kitchen facility.

A large HMO is where five or more residents living in the property with shared facilities.

Paragon Bank commercial director for Mortgages Louisa Sedgwick says: “Demand for HMOs has grown in recent years as the quality of the accommodation has risen, with facilities such as ensuites becoming commonplace.

“HMOs are moving up the quality scale as tenants demand more space, better services and access to private facilities.

“Although yields measured as the ratio of rental income to property price are strong for the market, the actual landlord return, which is rental income versus mortgage payments, is even stronger for this property type, but they are typically more labour intensive than a standard buy-to-let property.”

She adds: “The key to a successful HMO proposition lies in the experience of the landlord, the location and understanding the target tenant market.”