Landlords seeking high rental yields should offer properties to students and young professionals, according to findings from specialist buy to let mortgage lender Paragon.
Student rents generate 6.45% a year in yields – slightly ahead of young professionals at 6.22%.

A property’s yield is calculated by dividing the total annual rental return by the property’s current value.

The average yield on a UK buy to let property is 6.2%.

Paragon’s survey reviewed average yields according to demographic groups. While students and young professionals came out top, at the other end of the spectrum, benefit claimants (non-housing allowance) account for the lowest yields at an average of 5.78%, followed by young couples and manual workers at 5.94%.

Landlords can benefit from calculating rental yields as it will help to assess the profitability of their assets and it can prove helpful in comparing the viability of one property against another.

“Returns for many landlords will often be higher than stated yields as these are calculated at the current rental income against the property’s value today, not taking into account capital appreciation since the landlord purchased the property or their loan-to-value,” said Nigel Terrington, Paragon’s chief executive.

Terrington believes student yields have come out on top because rentals are often let on a per-room basis, which generates higher returns.

“On the downside, they tend to require a higher degree of maintenance, so landlords have to factor that cost into their overall business models,” he said.
The findings of the survey also prove that the size of a landlord’s portfolio has little impact on the levels of yield.

Landlords with a portfolio of 20 or more properties generated the same average yield (6.2%) as those with a single property, while those who owned between two and four properties saw an average yield of 6.5%.

Location certainly has a level of influence. The West Midlands area came out with the highest average yield of 6.5%, followed by Yorkshire & Humber (6.4%) and the North East (6.2%).

Yields in Central London are on average lower (5.5%), because of high property prices.