Rental yields in the UK have risen to their highest point since the start of 2006 according to Paragon Mortgages Buy-to-Let Index.

Landlord’s incomes have risen continually for the past year with a 12% increase annually including 6% over the last 6 months.

With the current decline in house prices many first-time buyers are choosing to put off their first purchase in expectation of further drops in price.  This has led to greater demand for rented accommodation and in turn has spurred landlords into greater portfolio acquisitions.

John Heron, managing director of Paragon Mortgages:

"Strong tenant demand has been pushing up rents, allowing landlords to achieve better yields than they've seen for more than two years. With lower property prices and higher rents, the yield they can achieve on a carefully selected and well-managed investment property can be significantly higher than other forms of investment. With an average portfolio gearing of just 36%, landlords are well placed to free up equity to expand their portfolios."

With current uncertainties in the market, the rental sector looks certain to continue growing for the short-term.

Heron concludes:

"Landlords who are able to take advantage of cooling house prices are fulfilling a vital social role. Investors remain better placed to buy property than most owner-occupiers or first-time buyers, and people still need places to live. Social housing is unable to meet short-term demand for homes, so we can expect the pressure on the private rented sector to continue in all parts of the country."