Despite rising mortgage prices, Paragon’s July Buy-to-Let Index shows that the buy-to-let market continues to thrive, despite a slowdown in mainstream housing.
Demand for rental properties continues to flourish, enabling landlords to raise rents to cover increased mortgage repayments. The Council of Mortgage Lenders recently published figures showing that buy-to-let mortgages accounted for a record 12% of all new mortgage loans in the UK in the first half of 2007.
According to Paragon, average rental prices have increased by approximately 3% in the past three months.
The company’s chief executive, Nigel Terrington, explained the reasons behind this. “As owner occupiers are increasingly struggling under the weight of higher borrowing costs, buy-to-let landlords can provide accommodation for the growing number of young people who want a flexible lifestyle or who aren’t yet ready to step on the property ladder,” he said.
Paragon’s research reveals that yields have remained flat at around six per cent for more than a year; although it points out that rental return is much higher when landlords’ gearing is taken into account. The average landlord property value rose one per cent in July to £181,533, while total annual returns – including capital gains plus rental income – stood at 11.6 per cent, the highest level since April.
People are increasingly putting off buying property until later in life and Paragon claims the average age of first-time buyers is now 34 as renting offers those in their twenties “mobility, flexibility and affordability”.
Mr Terrington said: “Buy-to-let provides housing for young people, who otherwise would be forced to buy and be stretched beyond their means. It would result in dramatically higher levels of repossessions in the housing market.”
“Unlike owner occupiers, landlords earn income on their property, and can raise rents too. They are not completely sheltered from the effects of rising rates but we would expect arrears in the sector to continue to perform better than those in the mainstream market,” he added.
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