Flats and terraced homes saw the strongest gains in yield last year, although HMOs still offer the best returns, according to new research.

Paragon Bank reports that yields on flats grew by 0.24% to 6.3%, with terraced homes up 0.23% to 6.2%, while HMOs jumped 0.2% to 8.6%.

Paragon’s Q4 2025 Buy-to-Let Yields report, based on the bank’s lending data, found that overall yields remained flat, finishing at 6.9%. Regionally, Wales and the North East achieved the best growth; yields in Wales grew by 0.7% to 8.8%, followed by the North East, up 0.3% to 8.2%. Yields in Greater London also performed well, increasing 0.3% to 5.7%.

Louisa Sedgwick, Paragon's managing director of mortgages, says yields have performed strongly since summer 2022, when house price growth began to slow and rental inflation accelerated due to the imbalance between supply and demand. “While we saw this momentum ease last year as the market normalised, we expect yields to remain stable throughout this year,” she adds.

Flat

“Although overall yield growth was relatively flat in 2025, certain property types and regions stood out, reflecting varied local market conditions and shifting demand for specific kinds of homes.”

Landlords in the North East also reported the strongest level of demand in Q3 (71%), according to research by mortgage market specialist Pegasus Insight, while the East Midlands generated the weakest demand (60%).

Voids

However, the incidence of voids increased during this quarter, with 44% of landlords reporting that they had experienced an empty property at some point during the previous 12 months, up 7% on the previous quarter.

Pegasus believes that after several years of intense pressure, the rental market may be moving into a more stable phase. “Affordability is now playing a bigger role in shaping behaviour on both sides of the market,” says Mark Long, founder and managing director.

“Tenants are more cautious about moving, while landlords are balancing rising costs, regulation and the realities of what renters can afford. The result is a market that still has solid underlying demand, but one that is gradually becoming more measured and sustainable.”  

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