Buy-to-let weathers interest rate storm

The buy-to-let property market remains robust despite recent increases in interest rates according to new research.

Although interest rates of 5.75 per cent and high house prices have caused a slowdown in the mainstream mortgage market, landlords have been buoyed by strong rental demand, according to property specialists Paragon.

Rents increased by an average of 3.04 per cent over the past three months; a rate of 12.7 per cent annually.

This has allowed landlords to offset higher mortgage repayments with increasing rent yields.

The average landlord property value rose by one per cent during July to £181,533 and total returns on property stood at 11.6 per cent; the highest level since April.

"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," commented Nigel Terrington, chief executive of Paragon.

Figures from the Council of Mortgage Lenders (CML) recently revealed 12 per cent of all mortgages issued during the first half of 2007 were in the form of buy-to-let.

Landlords have been able to avoid the turbulence shaking the mainstream market.

According to the CML only 0.63 per cent of buy-to-let mortgages were in arrears for more than three months during the first six months of 2007, compared with 1.06 per cent in the wider 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," concluded Mr Terrington.