London rental yields have hit 7% as Paragon Mortgages' buy-to-let Index shows further recovery in the capital.
The index reveals that yields have risen in the capital from a low of 6.56% in July to 7% in October. The trend in the capital is symptomatic of a general firming of yields in southern parts of the country, with yields in the South-East rising to 7.21% and in the South-West to 8.02%.
John Heron, managing director of Paragon Mortgages, says: “London landlords are enjoying a sustained improvement in rental yields which have now broken through the 7% barrier. This is good news for property investors in the capital.”
Nationally, yields are unchanged at 7.60%, and remain marginally up on the 7.57% registered in July and August. Yields in the Midlands and North have eased, further reducing the North-South divide. Yields remain higher overall in the North and North-West, although Greater London is no longer the lowest yielding region of the country, following a fall in yields in East Anglia in October.
The Index also shows that property values are 16.7% higher than in March at £127,329, while investor landlords are paying 20.3% more for a property than a year ago, compared with rises of 16.7% and 16.1% according to Halifax and Nationwide respectively.
Rental incomes saw a rise of 1.58% on the month at £9,672 – the third consecutive monthly increase. Rental incomes are up 8.49% over the past year, more than double the rate of inflation, reflecting sustained demand from tenants.
Landlords in the East Midlands achieved the highest overall return at 46.42%, down from 61.65% in September. Average total return to the investor in Greater London rose sharply last month to 43.63% from 34.85% in September, bolstered by capital appreciation and rental income, bringing London into second place in the league table of total returns. Nationally, average total return stands at 28.73%, up slightly on September's 28.49%.