Average total annual returns achieved by landlords rose in October, from 23.6% to 24.5%, according to data from Paragon Mortgages’ November buy-to-let index.

The improvement in the average comes on the back of significantly higher returns in a number of regions, including the East Midlands (up from 35.8% to 53.2%), Wales (up from 43.3% to 52.3%), Yorkshire (up from 24.8% to 34.2%), the North (up from 37.9% to 39.8%) and East Anglia (up from 16.5% to 17.4%).

The return comprises a total of £31,207 (up from £29,607 last month), made up of £21,535 (£20,086 last month) in capital appreciation plus £9,672 (£9,521 last month) in rental income, on a property worth £127,329 (£125,246) at purchase.

John Heron, managing director of Paragon Mortgages, comments: “October saw a reversal of the downward trend in overall returns that began in August."

"An increase in property values across the majority of the country has contributed to a modest pick-up in overall returns made by landlords over the past 12 months. Investors are now making on average more than £31,000 gross on their buy-to-let properties.”

Property values nationally firmed by 2.4%, to top £148,000 for the first time, with the average investment property now costing £148,864. Year-on-year, landlord property prices are 16.9% higher than a year ago.

Landlord rental incomes also rose in October by 3.2% from £9,606 to £9,911 and are now 2.5% higher than they were 12 months ago. On the back of this increase landlord yields also rose in October by 0.72% to 6.66%.

Following a slight decrease over the last few months landlord rental incomes have risen steadily since September, reaching the highest figure ever recorded in the Paragon buy-to-let index at £9,911.

Uncertainty in the owner occupier market has helped strengthen tenant demand as prospective buyers, many of whom are would-be first-time-buyers, are unable or unwilling to make the initial leap onto the housing ladder. Higher rental incomes have had a positive impact on yields – which have risen from 6.61% to 6.66%.”

John Heron explains: “Prices paid by landlords have been rising more rapidly than house price inflation in the mainstream housing market, but landlords have benefited from the slower owner-occupier market, enabling them to snap up homes at very attractive prices."

"The average buy-to-let landlord pays an average property price of £148,864, compared with Halifax’s £160,857 and Nationwide’s £152,159 for owner-occupiers. However, all indicators show the housing market cooling, with steady falls in annual house price inflation, which is good news for owner-occupiers and investors alike.”

Yields

In October yields increased by 0.72%. On average, landlords are achieving a yield of 6.66% gross from their investment properties.

Yields increased across seven of the ten regions this month. The South West saw the greatest increase of 7.96% up to 7.47%, from 6.92% in September. The South West now has the highest yield of all the regions.

The North moved into second place up 2.50% to an average yield of 7.44%. East Anglia also saw an increase in yields, up 4.13% to 6.79%. Wales increased by 3.01% to 6.99%, the West Midlands increased 1.29% to 6.93% and Yorkshire increased by 0.55% to 7.32%.

Bucking the trend of recent months, yields in the South East rose by 0.89% to 6.33%, although this region and Greater London still produce the lowest yields due to higher property prices.

In October property values continued to rise in eight of the regions, with the East Midlands up sharply by 8.8% to £155,165, East Anglia up 6.4% to £136,117, Greater London up 5.4% to £250,871 and the North West up 2.2% to £106,583. Smaller rises were seen across the remaining regions except the South West and Wales, where prices fell slightly.

Rents

Rents increased across all regions in England, whilst Wales saw a slight decrease. The largest rises were in East Anglia up 10.84% to £9,249, the South West up 7.58% to £14,235, and the East Midlands up 5.07% to £11,113.