Flats and terraced homes delivered the strongest year-on-year rental yield growth in 2025, according to Paragon Bank’s latest buy-to-let yields snapshot, with returns holding up despite a more subdued market backdrop.
Paragon’s Q4 2025 Buy-to-Let Yield Report shows gross rental yields for flats rose to 6.33% at the end of the year, while terraced homes reached 6.28%, with annual increases of 0.24% and 0.23% respectively.
While those two property types saw the biggest improvement over the year, Paragon’s figures show specialist rental models delivered the highest overall headline yields.
HMOs topped the table with a gross rental yield of 8.61%, up 0.2% annually, while multi-unit blocks (MUBs) recorded a yield of 7.32%, rising 0.02% year-on-year.
In contrast, yields were lower for larger, higher-value property types. Detached homes ended 2025 with a gross rental yield of 4.54%, down 0.07%. Semi-detached homes’ yields were 5.45% – a year-on-year fall of 0.11%.
Bungalows were the only real exception in the mid-market segments, achieving a gross rental yield of 5.13%, up 0.06% over the year.
The data, though, underlines how heavily rental returns are influenced by both pricing dynamics and tenant demand, with smaller homes often competing for a wider tenant pool while also attracting more interest from cost-conscious buyers seeking manageable entry points.
Wales leads the regional yield table
Paragon’s report also reveals a clear regional pattern, with higher yields concentrated away from the most expensive areas.
Wales recorded the strongest gross rental yield in 2025 at 8.83%, followed by the North East at 8.2% and the East Midlands at 7.69%.
At the opposite end of the spectrum, Greater London posted average gross rental yields of 5.78%, with the South East at 6.3% and the West Midlands at 7.08%.
Paragon also tracked how quickly yields are changing, and Wales again stood out as the fastest-growing area, with yields improving 0.74% year-on-year. The North East followed at 0.38%, while Greater London showed a 0.3% annual improvement.
In contrast, the West Midlands and South West were the weakest performers, with yields falling 0.29% and 0.24% respectively. The South East and East Anglia also saw yields contract, both down 0.12% year-on-year.
Yields have “performed strongly” since 2022
Paragon linked the last few years’ stronger yields with a post-2022 shift in market conditions, as price growth slowed and rental inflation accelerated.
Louisa Sedgwick, Paragon Bank’s managing director of mortgages, said: “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. While we saw this momentum ease last year as the market normalised, we expect yields to remain stable throughout this year.
“Although overall yield growth was relatively flat in 2025, certain property types and regions stood out, reflecting varied local market conditions and shifting demand for specific kinds of homes.”
Clear winners and losers
The numbers suggest that, while overall yield growth was relatively subdued during 2025, there were still clear winners – particularly among smaller homes that tend to be more liquid in both the sales and rental markets.
The spread, though, between property types is significant, and the gap between HMOs (8.61%) and detached homes (4.54%) is substantial.
The report also points to the importance of local pricing and tenant demand. The fact that Wales combines both the highest yields (8.83%) and the fastest growth (0.74%) indicates that markets with a tighter balance between purchase prices and rents can still outperform the rest of the market.
