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Rental yields rising faster than house prices

03 March 2006
High demand for rental accommodation means rising house prices are not disappointing buy to let investors, recent figures have revealed.

Paragon Mortgages' Buy to Let Index for January found that rental incomes are growing faster than property prices, 1.22 per cent compared to 0.68 per cent.

The news will be particularly welcome to professional landlords thinking of expanding their portfolios in the coming months.

Although landlords are now paying an average price of £162,609 for a property, 3.65 per cent more than in October last year, they are happy to do so because of the returns they feel are guaranteed.

John Heron, Paragon's managing director, says that the housing market has showed signs of picking up this year, with prices "rising more strongly in most parts of the country" compared to last year.

"Over the past two years, the general trend in rents has been resoundingly upwards," Mr Heron said.

"The fact that growing numbers of professional investors are willing to pay higher prices for properties demonstrates that landlords are confident that current levels of demand are sustainable and indeed are set to increase."

Rents and property values were closely aligned in terms of geography, and the six regions displaying yield gains were led by Wales at 7.75 per cent.

Greater London rental yields remained at the 6.05 per cent level recorded in December, tenant demand being offset by the highest rise in house prices nationwide.

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