Buy-to-let market remains stable says Paragon

New data from Paragon Mortgages Buy-to-Let Index shows that rental yields remain stable as confident landlords continue to invest in additional properties.

In the first half of 2006, the private rented sector performed strongly, with renewed demand for rented homes from inward migrants and other types of tenant, leading investors to grow their portfolios. According to recent data from the Council of Mortgage Lenders, the value of new buy-to-let loans extended to landlords reached a record 17.5bn in the first six months of 2006, 20% higher than in the second half of 2005.

Average yields achieved by landlords remained steady at 6.04%, despite a slight seasonal slowdown this month in terms of property prices, which eased marginally between June and July 2006 down from 172,772 to 171,996.

John Heron, managing director of Paragon Mortgages, says: The first half of 2006 has proved a particularly buoyant time for residential property investors, who have grown their portfolios strongly on the back of an upsurge in tenant demand, particularly from inward migrants. Recent official figures show that 600,000 migrants from EU Accession States have come to this country since the enlargement of the EU, and the majority of these look to the private rented sector for their accommodation needs.

Sustained demand leads to a general firming of rents. Weve seen rental incomes rise by almost 2.8% over the past quarter, while yields have remained stable over recent months. With these positive trends repeated in most parts of the country, buy-to-let lenders have lent over 152,000 loans to investors in the first six months of this year.

We have seen solid activity up and down the country, with landlords making their investment decisions on the basis of attractive yields combined with the expectation of capital appreciation over the medium to long term. With the UK continuing to face a structural shortage of accommodation and steady expansion in the number of households, demand for rented (and indeed owner-occupied) housing will continue to grow.

This month, the East Midlands is the landlords hot spot in terms of yield, offering an average yield of 6.60%, pushing last months leader, Wales, into second place at 6.41%.

Heron adds: With relatively low property values (15.4% and 21.7% below the national average), the East Midlands and Wales are attractive regions for investors. Good demand for rented accommodation in the towns and cities of these regions keep the market underpinned.

On the other hand, yields are lower in Greater London and the South East, where property values are highest.