Buy-to-Let Yields Are at a 15-Year High – But Yield Is Only Part of the Story

Some welcome news for landlords has been revealed this month. Average buy-to-let yields have reached their highest level for more than 15 years.

According to Paragon Bank, the average gross yield on properties within its buy-to-let data reached 7.22% during the third quarter of 2026. That is the highest level recorded since the first quarter of 2011.

For private sector landlords, this is undoubtedly positive news.

But I would add two important words of caution.

Firstly, this is a national average, and there are disparities across the UK.

Secondly, and not unrelated to the first, yield does matter. But it is not the same thing as investment performance.

For landlords in South West London, particularly those buying with a ten, twenty or even a thirty-year horizon, there is a danger in becoming too focused on achieving the highest possible gross yield today, whilst overlooking what a property could deliver over its entire lifetime as an investment.

Do smaller properties produce better yields?

At first glance, chasing the best possible gross yield makes absolute sense.

Across South West London, where we operate at Your Home Managed, the average flat currently rents for around £2,012 per month and has an average sale value of £421,525 (at face value, a 5.7% gross yield).

The average house rents for approximately £2,709 per month, against an average sale value of £783,507 (at face value, a 4.1% gross yield).

Using those figures purely illustratively, the relationship between rent and capital value appears more favourable for flats than houses.

That perhaps helps explain why flats make up 83% of South West London's rental market.

Nationally, Paragon's figures tell a similar story – although the disparity between rented flats versus houses is a more stark in London than it is in many parts of the country.

Across the board, HMOs produced the highest average yields, followed by multi-unit blocks, but in the general rental market, flats come out on top, then terraced houses, while detached and semi-detached homes generated some of the lowest headline yields.

On paper, therefore, smaller and less expensive properties can look highly attractive as rental investment opportunities.

But paper returns do not tell the whole story. For one thing, if flats come with ongoing costs associated with their leasehold – albeit that those may well reduce under proposed Freehold and Leasehold Reform – the net yield relative to the gross yield may be quite different.

Secondly, though, the recurring revenue is only one element to consider. The other is the investment’s ability to build equity; and history paints us a bold picture.

Yield and capital growth

A rented property is an investment for the owner, providing recurring income as well as growing in value over time – which makes it different from many other types of investment that often do one or the other.

But whether leasehold or freehold, a rental investment does also have other ongoing costs to consider.

Tenancies end, so properties need remarketing. Inventories, cleaning, urgent repairs as well as routine maintenance, and even general administration all cost money. Even a short void period can make a noticeable difference to the effective return from an investment.

Smaller properties can quite reasonably deliver strong yields, and they will continue to form an important part of South West London's rental market.

But they can also experience greater tenant turnover, especially once children come into the picture.

Larger homes, particularly good-quality family properties in the right locations, can behave quite differently, as we wrote about in a previous article.

Families and established households of professional tenants value stability. Once they have found the right home, moved their possessions, possibly settled children into schools and established themselves within an area, moving every year or two is, for obvious reasons, not especially attractive.

For the landlord, that might mean a lower headline yield (not always, though, by any means), but it often makes for a longer tenancy with fewer voids, and therefore less frequent remarketing and fewer of the costs that come with repeatedly preparing a property for a new occupant.

As explained in that previous article, this is a new reality that should increasingly form part of any meaningful calculation of return.

Think about your capital investment

There is another important distinction when looking at property as a long-term investment.

Rental yield tells you about revenue.

It doesn’t tell us very much about what may happen to the value of the underlying asset over time.

That is particularly relevant when we look at South West London's historic performance.

Flats have historically provided a higher gross yield than houses in South West London; but what about their capital growth, as opposed to just rental yield?

We can review this through data provided by Dataloft, which draws on ONS figures and analytics provided through Information Works. The findings are very interesting.

Over the past ten years, the average value of flats and apartments in South West London has risen by 1.8%.

Average house values, by comparison, have risen by 24.1%.

Extend the analysis to a twenty-year study, and flats do show a more positive value increase, but the difference against houses is still striking.

Flat values have risen by approximately 93% over that period.

Strong, you might think… but the value of houses has increased by 130% in the same period.

Past performance is never a guarantee of what will happen next, and no landlord should assume those rates of growth will simply repeat themselves.

But the figures do demonstrate why judging two investments purely on their starting gross yield can be misleading.

A property producing a slightly higher rental yield but comparatively modest capital growth may ultimately generate a lower overall return than a larger property whose rental yield looks less exciting at the outset.

How do you judge the return of a property investment?

Imagine two investment properties.

One produces a higher gross yield but experiences more regular tenant turnover, more frequent void periods and repeated costs for marketing, maintenance and reletting.

The other generates a lower percentage yield but attracts tenants who stay for several years at a time, requires less intervention and also experiences stronger capital appreciation over ten years.

Which is the better investment?

The answer doesn’t come simply through comparing two yield percentages.

Instead, we need to take a look at the total return.

That includes rent received, costs incurred, void periods without income, maintenance expenditure and the growth in value of the property itself.

For landlords building wealth over a long period rather than simply trying to maximise today's monthly cash flow, those distinctions become extremely important.

On the other hand, for a landlord concerned about covering monthly buy-to-let mortgage payments, the recurring monthly income might be more important right now.

And that’s the other thing to remember. This story is not just about the properties involved. Different landlords can have very different priorities based on entirely different journeys, from starting point to intended destination; and that can alter the decision-making.

South West London's average yield needs context

Here in South West London, the overall gross yield across the rental of both flats and houses combined stood at 5.42% in September 2026, according to Dataloft.

That is below Paragon's national average of 7.22%.

But that doesn’t mean South West London landlords should look at that comparison and conclude their properties are inferior rental investments.

Our capital city in general is a relatively high-value property market, after all, certainly compared with much of the UK, which is the geography Paragon’s figures have been based on.

The capital required to buy here is considerably greater than in those areas recording the highest rental yields, which naturally suppresses the headline percentage.

The potential attraction of a buy-to-let investment here probably lies somewhere else.

It is in the combination of strong tenant demand, the quality and diversity of the local and London-wide employment base, the growing picture of relative long-termism amongst professional tenants, and the potential for capital appreciation over time.

Different types of property in South West London offer different combinations of those things.

The right property depends on what is right for you as the landlord

None of this is an argument that landlords should stop buying flats or terraced homes.

For some investors, particularly those prioritising cash flow, they make complete sense.

The important thing is not to assume that the property with the highest gross yield is automatically the smartest purchase. It depends.

A landlord whose priority is income today may reach one conclusion.

A landlord who intends to retain a property for twenty years, wants relatively low tenant turnover and hopes to build capital value over time may quite reasonably reach another.

Increasingly, we are seeing tenants stay within the private rented sector for longer, and that should influence the way landlords think about what they buy.

A tenant renting into their thirties or beyond may increasingly want more space, better-quality accommodation, a garden, room to work from home or somewhere suitable for a growing family.

Those properties may cost more, and at the same time their headline rental yield may be relatively lower.

That said, they may also attract the kind of tenant who treats the property as a long-term home rather than somewhere they expect to leave in twelve months – and for many landlords, that stability carries considerable value.

Yield is a starting point, not the destination

The rise in national buy-to-let yields is positive news.

It demonstrates that residential property can continue to produce attractive income despite higher borrowing costs, increased regulation and the other pressures landlords have faced in recent years.

Nevertheless, I would resist reducing investment decisions to a table of percentage yields on an excel spreadsheet.

The highest yielding property today will not necessarily be the property that produces the best return over the next ten or twenty years.

In South West London, in particular, indeed across London in general, there is a compelling argument for taking a longer view.

Consider the rent. Consider the purchase price. But also consider how long tenants are likely to stay, what tenant turnover actually costs, what maintenance may be required and what sort of asset you want to own in twenty years' time, i.e. whether the ambition is to sell, retain or leverage.

When it comes to it, it’s really a combination of things that makes for successful property investment.

It isn’t one thing over and above anything else.

It is about striking the right balance between recurring revenue, stability and long-term capital growth.

And that takes more than luck.