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Investors turning to property over savings

The private rented sector is likely to gain as investors turn to property for the best return on their savings, claims Paragon Mortgages.

Paragon Mortgages’ Trends Report into the private rented sector shows that in Q1 this year investment properties had an average annual yield of 6.2%.

The figure represents an increase from the 5.7% average annual yield seen at the same time last year.

The Trends survey also found that some 23.2% are planning to buy investment property this year, with 28.6% funding their purchase from cash savings.

John Heron, managing director of Paragon Mortgages, says: “The outlook for house prices in the short-term is still uncertain, but yields are strengthening because tenant demand is strong and property investors are able to pick up bargains.

“Experienced buy-to-let investors already appear to be taking advantage of low property prices and are adding to their portfolios, but we may see investors that have never considered property before purchasing rental investments.”

But Heron adds that landlords need to take the long-term view on property, rather than seeing it as a short-term fix to the current downturn.

He says: “The accidental landlord, where somebody who intends to sell their property but lets it out instead, is a short-term phenomenon as they are most likely to sell when the property market returns to normality.

“These individuals also need to live somewhere, so many end up renting elsewhere.

“The expansion that the private rented sector needs is likely to come from existing landlords increasing their portfolios and new investors attracted to residential property because of the solid long-term returns.”

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