Flats and Terraced Homes Show Strongest Yield Growth in 2025

Buy-to-let landlords witnessed notable increases in gross rental yields for flats and terraced homes during 2025, according to lending data from Paragon Bank. Flats ended the year with an average gross yield of 6.33%, up 0.24 percentage points compared to 2024, while terraced properties followed closely with a 0.23 percentage point rise to 6.28%.

These figures reflect shifting demand within the private rented sector, where certain property types have outperformed others amid changing market conditions. Houses in Multiple Occupation (HMOs) continued to generate the highest returns overall, finishing 2025 with an average gross yield of 8.61%, an increase of 0.20 percentage points over the year.

Regional Variations Highlight Opportunities for Landlords

Regional performance varied significantly, with Wales leading the way by recording the sharpest rise in average yields. The Welsh market saw yields climb by 0.74 percentage points to 8.83%, making it the most lucrative region for buy-to-let investors in 2025. The North East followed with an increase of 0.38 percentage points to 8.20%, while Greater London also experienced a notable uplift of 0.30 percentage points, reaching 5.78%.

Despite these pockets of growth, the overall UK buy-to-let yield remained broadly stable. The average gross rental yield across the country ended the fourth quarter of 2025 at 6.93%, closely mirroring the 6.94% recorded in Q4 2024 and 6.95% in Q3 2025.

Market Context and Outlook

Louisa Sedgwick, Managing Director of Mortgages at Paragon Bank, commented on the yield trends: “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.” She added, “While we saw this momentum ease last year as the market normalised, we expect yields to remain stable throughout this year.”

Her observations underline the impact of supply and demand dynamics on rental returns, particularly in regions and property types where demand remains robust. The relative stability of yields overall suggests a balanced market environment for landlords, with selective opportunities for yield growth depending on property type and location.

What This Means for UK Landlords

For landlords and letting agents, the data highlights the importance of considering property type and regional market conditions when assessing investment opportunities. Flats and terraced homes, especially in regions like Wales and the North East, may offer stronger rental income growth potential compared to other property types or areas.

Meanwhile, HMOs continue to deliver the highest yields, though they may require more intensive management. Understanding these nuances can help landlords optimise their portfolios and respond effectively to evolving market trends.

Conclusion

The 2025 buy-to-let yield landscape shows a nuanced picture, with specific property types and regions driving growth despite overall market stability. Landlords should monitor these trends closely to identify where rental returns can be maximised in the coming years.

Suggested internal link anchors

• gross rental yields
• buy to let investment
• houses in multiple occupation
• regional rental markets
• rental inflation
• private rented sector
• letting agents
• property types for landlords
• rental yield trends
• landlord portfolio management

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