Buy-to-let market remains strong

Returns on buy-to-let properties are at the highest level since the summer of 2006, according to specialist lender Paragon.

Releasing its monthly report into the market, the lender says higher yields have been driven by additional demand as many first-time buyers defer purchase and opt to rent.

The average return on a 12-month let stood at 14.2 per cent during October, compared to 10.5 per cent in September 2006.

Higher levels are likely to remain in place until confidence returns to the housing market, which many people believe may have peaked.

Some areas of the country have, however, benefited more than others.

Rental yields are highest in Greater London (25.1 per cent), East Anglia (24.5 per cent) and the north (20.6 per cent).

Over the previous 12 months the average rental property has accumulated £13,640 in value.

Average rents have also increased.

The last twelve months have seen an average of seven per cent increases in rent.

It now costs £10,718 to rent the average property.

The future for the rental sector also looks good.

Recent research from property website Hometrack found some 24 per cent of households can afford to pay the rental levels presently charged in the social housing sector but are not in a position to purchase a property.

Tightening of lending criteria in the wake of the credit crunch may also prompt more people to enter the rental market, as they are unable to secure a mortgage, according to Paragon.