Two-year high for yields

A continuation of the current upwards trend, average yields rose to 6.3 per cent in January.

Regions with the highest yields include Wales, at 7.5 per cent, and the North and North West, both of which are generating yields of 7.2 per cent.

On an annualised basis, terraced properties have shown the best yield performance, growing 8.6 per cent, followed by detached property and semi-detached property, growing 3.6 per cent and 1.6 per cent respectively.

However, the yield generated by flats has fallen by 1.4 per cent over the year to January.

Healthy yields are indicative of strong cash flow, with many property investors using them as a gauge to judge the financial viability of a potential buy-to-let purchase.

This is reflected by the fact that tenants currently pay around 8 per cent more for a rental property today than back in September 2007.

John Heron, Paragon’s director of mortgages, said that predictions of stronger rental demand as a direct result of market conditions were being proved right.

"Since September, we have seen one of the strongest periods of rental growth ever. This, together with the easing of house price inflation, has translated into higher yields," he said.

”Many landlords who have been in residential property investment for a considerable time have low levels of gearing – on average 36 per cent – and significant amounts of equity in their portfolios.

"Many landlords are reaping the benefit of a sound, long-term investment strategy and are avoiding the pitfalls that speculative buyers are prone to.”