Rents continue to rise, says Paragon

Average rents are continuing to rise, the latest data from Paragon Mortgages reveals.

The lender says average annual rents has risen every month since November 2006, to reach £10,702 in May.

This is 1% higher than April’s figure of £10,591, and up 9.7% on November’s figure of £9,665.

John Heron, managing director of Paragon Mortgages, says: “Rents continue their upward trend.

“It may be that higher borrowing costs are feeding through into rent rises, but more likely it is a function of the strength of tenant demand.

“The number of people who want to rent continues to grow due to a range of social, economic and demographic factors, including growth in the student population, more single person households and inward migration.”

As evidence of this growth in tenant demand, Paragon says 63% of landlords who responded to a recent survey said that demand was either stable or growing, and they are growing their property portfolios in response.

The latest Council of Mortgage Lenders figures show that well over half of buy-to-let lending business is undertaken for the purpose of property purchase as opposed to remortgaging on an existing property or portfolio.

Heron adds: “Yields appear to have reached an equilibrium of around 6% at which buy-to-let investment makes sense.

“Even after recent rises in interest rates, this stable yield generates a good return to landlords, bearing in mind that average gearing across their whole portfolio is around 38% and many are immune to short-term interest rate rises as they borrow on a fixed rate basis.”

David Whittaker, managing director of Mortgages for Business, says: “Despite the base rate increases, many landlords have been encouraged by the continuing strong tenant demand and are expanding their portfolios.

“Their rationale is that annual rental growth of 5% or more across a portfolio will generate additional cashflow on their existing properties where in many cases they have locked into fixed rates and are therefore protected from increased borrowing costs.

“This allows them to take a more sanguine view on new acquisitions which are now being funded against rates that are rather higher than at the turn of the year.”