Landlords may be facing new challenges around regulatory change, but rental yields continue to be healthy. Lower interest rates and inflation, down from its 2022 peak of 11%, are helping to boost the returns of landlords and investors. So, what’s the full picture?
Rental and house price inflation
The latest figures from the Office for National Statistics show that average UK monthly rents continue to rise, up by 7.4% to £1,335 in the 12 months to April 2025 and to £1,228 in the East of England specifically. This is an easing of rental inflation compared to the previous month but still marks healthy, positive growth. Rental growth is also outpacing that seen within the housing market, where average UK prices rose by 6.4% to £271,000 in the 12 months to March 2025, according to the ONS.
Continued buyer hesitation, as well as a general lack of rental supply in addition to more limited availability as some landlords choose to leave the market, are likely to drive rents even higher. Rental growth of 17% is expected by 2027.
Interest rates and mortgage rates decreasing
Of course, rental yields are also impacted by interest rates and general inflation. Interest rates are falling. May saw the second cut to the base rate of 2025, taking it down to 4.25%. Further cuts to at least 3.75% have been widely predicted by the end of the year.
That means mortgage rates will also continue to fall, giving landlords who may have previously fixed at higher rates the chance to refix on lower BTL mortgage rates, thereby increasing net yields further.
The impact of inflation
Consumer inflation, meanwhile, is having a less predictable time. It’s now a concern that the most recent figures could hamper further interest rate cuts as the Bank of England seeks to bring down the inflation figure to its 2% target once more. In March, inflation was 2.6% in the 12 months but in April it hit 3.5% for the 12 months to April 2025 – above 3% for the first time since March 2024. One of the biggest upward contributions to the annual inflation rates has come from housing and household services as energy prices soared.
Keeping control of costs
For landlords, keeping control of costs will be essential to maximising rental yields in the current market. At a time when services such as utilities have increased, landlords will face higher costs from their suppliers as they also cover rising costs. That means a tighter control on maintenance and management costs will be essential to boosting yields. Longer-term, however, the continued rental growth that is expected as demand continues to outpace supply, is attractive for both investors looking to expand and landlords operating existing portfolios alike.
