Last month the average overall return to the buy-to-let investor across the country rose to 23.4%, says Paragon Mortgages.

The March edition of the company’s buy-to-let index shows another rise in the prices landlords are paying for their residential investments, as property values increased by more than 3% in February, following a 0.6% rise in January.

Average property values are now £127,880, as compared with £124,128 in January. Year-on-year, landlord property prices are 15.4% higher than a year ago.

John Heron, managing director of Paragon Mortgages, comments: “The housing market has proved remarkably robust since the New Year, with both Halifax and Nationwide showing price rises of around 3.8% in two months.”

“Landlords, as ‘unemotional purchasers’, are often able to negotiate better prices than owner-occupiers, but even for investors prices are up 3.6% in two months. It’s becoming trickier for them to find properties at very attractive prices as there’s plenty of buyer interest out there and stock levels remain quite low.”

“At the same time,” points Heron, “rising prices mean that the overall return to the long term investor – taking into account both rental income and capital appreciation – is on the increase. Last month the average overall return to the investor across the country rose to 23.4%, compared with 20.1% in December and 19.5% in January. A healthy return on investment by any measure.”

In February, rental incomes rose by 1.3% from £8,989 to £9,105 and are now 2.5% higher than they were 12 months ago. Despite the increase in rentals, the rise in property prices led to a slight easing of rental yields to 7.12%.

Firming yields were seen in the West Midlands, Yorkshire and Greater London on the back of rises in rents achieved, despite strong house price inflation in all three regions. The West Midlands, in particular, saw an increase in yields, which rose from 7.43% to 7.73% as rents surged from £8,238 to £8,873. Other regions saw softening yields due to rising house prices or lower rents.

This month, the highest yielding regions continue to be the North and North West, although both regions have experienced a slight easing as a result of lower rents. Greater London, as previously, offers the lowest yield, although there was a slight improvement this month from 6.41% to 6.42%.