Landlords with buy-to-let mortgages achieve great rental yields

24 June 2008 / by Daniela Gieseler
Returns from rental properties have hit their highest level since early in 2006, rising by 6.4 per cent last May, according to figures from Paragon Mortgages' Buy-to-Let Index.

Whereas the outlook on the property market is mostly gloomy at the moment, professional landlords seem to be the winners of the current property crisis.

Their income from rental properties has increased steadily over the last twelve months – by 12 per cent over the last year. In the meantime, the value of their properties will have risen by 7.5 per cent year after year, although there was a slowdown in the past six months where the value rose just over 0.2 per cent.

"Strong tenant demand has been pushing up rents, allowing landlords to achieve better yields than they've seen for more than two years," John Heron, managing director of Paragon Mortgages, explained the situation.

He continued: "With lower property prices and higher rents, the yield they can achieve on a carefully selected and well managed investment property can be significantly higher than other forms of investment."

With less and less people being able to afford their own property and more opting to rent, landlords are looking to expand their property portfolios. Falling house prices will add to this trend as well, and the buy-to-let sector is bound to grow over the next few years.

Paragon, which surveyed over 200 landlords, found that 74 per cent said that the prospect of a good deal encouraged them to take out a buy-to-let mortgage and purchase another property, despite potentially higher financing costs in the current economical climate.

Mr Heron concluded: "Landlords who are able to take advantage of cooling house prices are fulfilling a vital social role. Investors remain better placed to buy property than most owner occupiers or first-time buyers, and people still need places to live."

© Fair Investment Company Ltd