Buy to Let Yields Still Strong

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Yields in the private rented sector have continued to strengthen as landlords experience growing levels of tenant demand.

Paragon Mortgages' survey of experienced landlords showed that average yields rose to 6.4% in the second quarter of 2009, up from 6.2% in the first quarter. This is the second successive quarter that yields have risen after a lengthy period of stagnation.

The rental yield, which is the property's rental income as a percentage of its current value, is an important factor in landlords' purchasing decisions as it generates cashflow, allowing them to meet mortgage repayments and other expenses relating to their property.

Landlords in the Midlands achieved the strongest yield at 7.4%, followed by those across the North of the UK, but most landlords continue to experience strong levels of tenant demand and believe that demand will continue to increase in the coming year – nearly a third of those landlords surveyed predicted tenant demand will increase. This means that there is a lot more scope for rental increases over the coming year.

John Heron, managing director of Paragon Mortgages says: "Landlords have enjoyed increased levels of tenant demand throughout 2008 and 2009 and it looks like that will continue into 2010. A lack of available mortgage finance makes it difficult for potential homeowners to purchase property and many people remain unwilling to commit to purchasing a home in the current house price environment.

"In addition, landlords continue to experience strong demand from those sectors of the population that have historically driven the growth of the private rented sector, such as students, migrant workers and young, mobile professionals. In some markets, this is feeding through to rental increases, allowing landlords to improve the yield on their property.

"A strong yield level will continue to attract investors to the private rented sector, particularly as the returns from savings accounts are poor and the stock market remains volatile."

SOURCE: Paragon, 14/07/09

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