Buy-to-let landlords are generating higher total returns than at any time since June 2006, according to Paragon’s October Buy-to-Let Index. The average total return (capital gains plus rental income) generated by landlords is 14.2%, up from 12.9% six months ago and 10.5% a year ago.

Despite the increase in property values over the period, rental yields have remained steady at around 6%. Rents have followed an upward trend, rising by almost 7% or £700 in one year. The average property has increased in value by £13,640 over the same period.

John Heron, managing director of Paragon Mortgages, says: “The market environment for buy-to-let is very positive. The UK’s population and the number of households continue to grow more rapidly than the housing supply, so the underlying shortage of homes is becoming gradually more acute. On top of that, a large proportion of the new households being formed comprise of people who are more likely to rent than buy – inward migrants, students and people setting up home after relationship breakdown. This creates upward pressure on rents and additional demand for rented homes, and investors are responding by adding to their portfolios.”