Buy-to-let property prices pick-up

The latest buy-to-let index from specialist lender Paragon Mortgages shows a renewed pick-up in the prices at which investor landlords buy properties.

Nationally, property prices rose by 1.99%, with larger rises in some regions.

John Heron, managing director at Paragon Mortgages, says: Residential property investors continue to build their portfolios in a buoyant housing market.

Weve seen prices at which they buy properties rise by almost 2% since last month, contributing to a 4.7% increase in the six months since October 2005.

This pick-up is led in particular by strong property price inflation in the North, Greater London and the South-East.

However, it seems rising property values are not deterring investors from growing their portfolios.
Heron adds: There has been a resurgence of buy-to-let activity since last autumn, particularly among larger scale and professional investors.

In all parts of the country, upbeat landlords are buying properties at higher prices, secure in the knowledge that there is good tenant demand out there for the right property in the right place.

We are seeing good investor activity in many northern cities, as they purchase to meet the accommodation needs of all categories of tenant students, key workers, families on benefit, and young professionals.

For the most part, existing landlords are adding to their portfolios, and there are not so many first time landlords.

It is perhaps no coincidence that real estate investment is popular at a time of uncertainty in the equity markets.
Heron believes this positive trend looks set to continue. He says: In our latest landlord survey, investors said that they expected to expand their portfolios in terms of both property numbers and value by 5.6% over the next 12 months.

As ever, landlords need to have a good understanding of their local market place, and to know what types of property appeal to the prospective tenants who are looking to rent in the area.

A rental property needs to have broad appeal so that it can be let easily and void periods can be minimised.

Our research also shows that voids are following a downward trend, from falling from 2.9 to 2.8 weeks over one quarter.

The index shows rents have stabilised after easing slightly last month.

Nationally, they rose by just 0.30% from 10,082 to 10,113. Rental values now stand at almost the same level as six months ago, when they stood at 10,152.
As last month, the East Midlands is the region with the highest yield, at 6.84%, followed by the North-West at 6.54%.

At the other end of the spectrum, Greater London and the South-East offer the lowest rental yields, of 5.78% and 5.97% respectively.

Heron says: While yields are lower in London and the South-East landlords are confident enough to purchase additional properties based on their knowledge of tenant demand and expectations of good capital appreciation of their portfolios over the longer term.

In fact, Greater London generates the second highest overall return this month.

Indeed, looking at total returns, the North comes top of the table with a total annual return of 42.41% this month (based on capital appreciation plus rental income on a property purchased in April 2005).

Greater London comes second at 40.88%, followed by the West Midlands at 27.67%.

East Anglia and Wales both also generate total returns in excess of 20%, at 24.71% and 22.41% respectively.

Heron adds: Total returns average 14.40% this month, up from 12.34% in March.

This provides ample evidence that the landlord who takes a professional approach to property investment can and does make a very good living.