Buy-to-Let Yields Reach 7.21% as Landlord Finances Improve

Gross yield measures annual rental income as a percentage of a property’s purchase price or value. A property valued at £200,000 and producing annual rent of £14,420 has a gross yield of 7.21%.

The rise from 6.93% to 7.21% means rental income has increased relative to the capital invested in residential property. For landlords, this means higher income and the potential for an improved net return after finance and operating costs.

Investors who select undervalued or emerging markets may also benefit from further rental and capital growth. This highlights the importance of asset selection, accurate rental evidence and prudent forecasting.

Gross yield measures rental income before costs. Net return is the amount the investor retains after finance and operating costs have been deducted.

UK Finance reported average interest cover of 221%, up from 204% a year earlier. This compares the rental income received with the mortgage interest payable.

Interest cover of 221% means that landlords received £2.21 in rent for every £1 of mortgage interest. For example, monthly rent of £1,105 against mortgage interest of £500 produces interest cover of 221%.

The increase demonstrates that rental income is covering borrowing costs by a greater margin, supported by higher yields and lower average mortgage rates.

Interest cover is not the landlord’s net return. It compares rental income with mortgage interest before management, maintenance, insurance, tax and other ownership costs are deducted. However, the increase to 221% is positive because it shows that rental income is covering mortgage interest by a greater margin, leaving landlords with more income before their remaining costs are paid.

The average interest rate on new buy-to-let loans fell to 4.71%, 29 basis points lower than a year earlier.

Lower mortgage costs allow landlords to retain more rental income after interest is paid. Combined with higher average yields, this is improving cash flow and increasing potential net returns.

Individual mortgage rates and terms will vary, but the wider direction is positive. Average borrowing costs have fallen, rental income is covering mortgage interest by a greater margin and landlord finances have improved.

Lenders advanced 58,272 new buy-to-let loans worth £10.8 billion during the first quarter. Compared with the same period in 2025, the number of loans increased by 3.26% and their total value rose by 7.02%.

The increase confirms that lenders remain willing to finance buy-to-let purchases and refinancing. It also shows that investors are continuing to identify viable opportunities across the residential market.

Buy-to-let mortgage arrears also fell. UK Finance recorded 8,960 mortgages in arrears of at least 2.5% of the outstanding balance, 6% fewer than in the previous quarter. This represented just 0.47% of all outstanding buy-to-let mortgages.

The reduction is further positive news for the sector. It shows that the overwhelming majority of landlords continue to meet their mortgage commitments as rental yields and interest cover improve.

National averages provide a useful overview, but returns vary considerably by location. Paragon Bank’s first-quarter data recorded average gross yields of approximately 8.7% in Wales and 8.10% in the North East during the first quarter, compared with 5.74% in Greater London.

These figures highlight the income available in affordable regional markets where property prices remain aligned with rents and local earnings. Investors entering the right market at the right stage of its cycle can achieve higher yields while retaining headroom for future rental and capital growth.

Property type also affects returns. Paragon reported an average yield of 8.78% for houses in multiple occupation, compared with 6.34% for flats and 6.30% for terraced houses. HMOs can generate considerably more income, but they also involve greater management, maintenance, licensing and compliance requirements.

The increase in average yields, lower mortgage rates and higher lending activity demonstrate that buy-to-let returns are improving.

Investors are generating more rental income relative to property values while paying less interest on new borrowing. This improves cash flow and increases the potential net return available from residential property.

Buy-to-let remains profitable when it is treated as a business. Investors must purchase at the correct price, use achievable rental figures and account for finance and ownership costs from the outset. Those who also select undervalued or emerging markets may benefit from further rental and capital growth over the longer term.

UK Finance: Buy-to-Let Lending, Q1 2026
UK Finance: Mortgage arrears and possessions, Q1 2026
Paragon Bank: Buy-to-let rental yields increase in Q1 2026