Paragon Bank has reported that during the first quarter of this year, average rental yields increased to 6.0%, the highest recorded in three years.

Rental yields have climbed by 0.2 percentage points from 5.8% in Q4 2020 to 6.0% in Q1 2021. This represents a year-on-year increase of 0.7 percentage points after landlords said they were able to generate average yields of 5.3% in Q1 2020.

Paragon asked landlords what rental yield they currently receive, taking into account rental income as well as any mortgage, maintenance and other costs associated with running their letting portfolio.

The bank says the results demonstrated that investors’ ability to generate income is in part impacted by where their properties are located. The highest average rental yields are currently achieved by those managing lettings businesses in the South West (6.7%) and North East (6.6%). Landlords with property in Central London continue to achieve the lowest yields at 5.4%, due to higher average property prices in the capital.

Correlation between typical yields generated and portfolio sizes was also identified after single property landlords recorded average yields of 5.7%, while landlords who operate portfolios containing 20 or more properties responded 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.”