Landlord profits in the third quarter of the year hit their highest point for almost two years, data from Paragon Bank shows.

The survey by the specialist banks shows that 87% of buy-to-let owners in the period reported they were in profit, up 7% on a year ago and the highest level since the first quarter of 2022.

It follows successive quarterly landlord profitability reports for over a year, the study adds.

This comes as average private monthly UK rents lifted 8.4% to £1,295 in the year to September, according to the latest data from the Office for National Statistics.

This is unchanged from the previous month and below the record-high annual rise of 9.2% in March, according to the government body, but is more than four times the rate of inflation at 1.7%.

The Paragon study, drilling deeper, says on average 17% of landlords report making a large profit and 70% a small profit.

The proportion of property investors who made a loss fell during the third quarter to 4% from 6% in the previous three months, and from 8% a year ago.

The remaining 9% of landlords broke even.

On a regional basis, net returns are highest among landlords operating in the East of England, with 90% making a profit.

This is followed by lettings in the South West and East Midlands, with 89% and 88% of BTL owners reporting a profit, respectively.

By tenant type, property investors who let to students were most likely to be profitable, at 91%, followed by families with children, 88%, and couples, 87%.

Paragon Bank commercial director for mortgages Russell Anderson says: “While landlords have faced rising costs over the past two years, these findings support our belief that many have astutely managed their businesses to remain profitable and are now seeing improved returns.

“It’s likely that a key influence of this is the strong demand for rented homes against a backdrop of an improving economy as inflation has fallen.”

Pegasus Insight surveyed 720 landlords in September and October for Paragon Bank.