Paragon Mortgages’ September buy-to-let index reveals a pick-up in rental incomes across all but three regions. Rents increased in seven regions, with the largest rise in Wales, up 11.4% to £8,859, the East Midlands up 6.3% to £9,721, and the West Midlands up 5.5% to £9,499.

Rental incomes in both the North West and East Anglia rose by over 3% to £7,009 and £8,854 respectively, while smaller rises were seen in the South West and Yorkshire. Five out of ten regions are now registering rents of over £9,000 per year.

However, with declines in the other three regions, rents were almost unchanged nationally – at £9,524 compared with last month’s £9,598.

Over the past 12 months rental incomes in Wales have risen by 16.2%, the East Midlands by 26.4% and the West Midlands by 26.7%.

Property values have also risen in August across eight of the ten regions, with Wales up sharply by 11.06% to £126,576, the West Midlands up 7.3% to £132,853 and the South West up 5.66% to £181,035. Smaller rises in values were seen across the remaining regions except the North and the South East, where prices fell slightly. Average property values are now £141,765, as compared with £124,128 in January, a significant increase of 14%.

John Heron, managing director of Paragon Mortgages, says: “Landlords across the majority of the country are seeing a rise in rental incomes, fuelled by solid demand from tenants. Those regions witnessing the biggest rent rises were also those which experienced the greatest rise in property values."

"Prices paid by residential property investors are still increasing, but only very slightly: in August they were up by just 0.8%, in contrast with the large rises seen in the first half of the year, when investors had to compete with owner-occupiers in a busy market with limited stock available.”

As a result of rises in property values over the past couple of months, yields have slipped slightly in recent months. On average, landlords are achieving a yield of 6.7% gross from their investment properties.

Landlords continue to enjoy good overall returns, with total returns generated since August 2003 of just over 22% (on an average property purchased that month) - a total of £27,620, comprising £18,266 in capital appreciation plus £9,354 in rental income, on a property worth £123,498 at purchase.

Seven out of ten regions provide landlords with a total annual return in excess of 25%. The West Midlands overtook both the North and Wales in generating the highest overall return, of nearly 57%. Wales offered the second highest total return to investor landlords of 55.9%, while the North dropped to third place, with a return of 49.1%. The total annual return exceeded 30% in two other regions – the East Midlands (40.7%), and the North West (35.5%). Overall returns tend to be lower in southern regions – where house price inflation has been relatively weaker over the past year, and yields lower.

Year-on-year, the rate of increase of landlord property values has also declined, from over 17% in July to 14.8% in August. Paragon’s data continues to show annual house price inflation for investors at lower levels than the latest figures published by Halifax and Nationwide suggesting that overall landlords continue to negotiate better deals on properties than owner-occupiers.

As seen previously, the North is the region offering landlords the highest yield, at 7.84%, while Yorkshire is in second place at 7.31%. The East Midlands and North West provide the same yield, of 7.20%. Generally, there is an inverse correlation between yield and property value, i.e. the cheapest properties offer the best percentage yield. The North saw an increase in yields of nearly 2% as property values dipped slightly in August. Conversely, in London and the South East, where properties values are higher, yields are lower.