Rental yields have hit a two year high, encouraging some buy-to-let landlords to expand their portfolios despite the limited availability of buy-to-let mortgages.

The Paragon Mortgages' Buy-to-Let Index shows that yields (income less costs) rose in May to their highest level since the start of 2006.  Landlords' rental incomes have increased steadily over the past year - rising nearly 12 per cent over the past twelve months.  Meanwhile, property values have broadly stagnated. 

John Heron, managing director of Paragon, said: "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 per cent, landlords are well placed to free up equity to expand their portfolios".

In Paragon's Trends survey of over 200 landlords, three quarters said that an ability to get a good deal on properties encourages them to buy, even in the current climate.  Cheaper property prices outweighed the potential deterrent of higher financing costs in influencing their purchasing decisions.