Areas with highest and lowest rental yields unveiled

Rental values in England and Wales increased for the third month in a row in June, once again reinforcing the fact that now is a good time to invest in the buy-to-let market.

The latest Buy-to-Let Index from LSL Property Services plc shows that average rents rose by 0.9% to £718 per calendar month, which is just short of the all-time high of £720pcm reached last autumn.

The hike in rental prices is ultimately being supported by historically high demand from tenants, including many would-be homebuyers struggling to secure a mortgage because of tight lending criteria.

LSL projects that the "sheer weight of tenant demand" will continue to push up rents across the country. But where is best to invest and where are property investors achieving the highest rental returns?

London is ultimately the most desirable place to invest in property. The supply-demand imbalance means that prospects for capital growth look good while at an average of £1,047pcm, homes in the city command the highest rental values in the country. But high property prices means that London does not offer the highest rental yields.

According to research from the specialist buy-to-let mortgage lender, Paragon Mortgages, the highest rental yields are currently achievable in Yorkshire and Humberside, where properties produced an average rental return of 6.8% during the second quarter of this year.

The regional spread at the top of the table is diverse with landlords in Wales achieving a yield of 6.7% in Q2 up from 6% in Q1.

However, landlords in the South West have stayed put, retaining their third place quarter-on-quarter with an average yield of 6.2%.

Landlords in other Eastern regions saw a slight decline in the average yields their portfolios generated in the second quarter, with landlords in the North East achieving a 6.1% yield and in the East of England a yield of 5.7%. At 4.5%, the East Midlands produced the lowest yield in Q2.

The average yield achieved by all landlords remained at 6.2% in Q2. Professional landlords with property portfolios of 20 or more properties continued to achieve a higher than average yield of 7% in Q2.

Yield table: Yorkshire and Humberside (6.8%), Wales (6.7%), South West (6.2%), South East, exc London (6.2%), outer London (6.2%), North East (6.1%), West Midlands (6%), Central London (5.8%), East of England (5.7%), East Midlands (4.5%).

Unsurprisingly, a growing number of landlords are applying for buy-to-let mortgages to expand their rental property portfolio, and this trend is set to continue in the foreseeable future.

By Marc Da Silva