Buy-to-let market stutters

Thursday, 27 April 2006 12:00 AM

The buy-to-let property market stuttered in March, with property prices and rents decreasing.

Following three months of house price rises, the average price paid by landlords in March fell by 1.5 per cent, research by Paragon Mortgages shows.

But at £161,039 the average price of a buy-to-let property is still 5.5 per cent higher than a year ago.

The survey is the first negative news for the buy-to-let sector since the pick-up in activity began at the end of last year.

"Since November, property values had been rising steadily, but this month saw an easing in prices paid," said John Heron, managing director of Paragon Mortgages.

"This reflects the fact that tenant demand is strongest for smaller homes, as singletons and young couples look for clean simple rental properties to fill their accommodation needs. As serious investors buy in response to actual tenant demand, average prices paid have eased a little."

Average rents fell back slightly to £10,082 while rental yields - annual rental value expressed as a percentage of the value of a property - now stand at 6.26 per cent.

Rental yields are now highest in the East Midlands, pushing Wales into second place and continuing the trend for areas with the lowest house prices to offer the highest rental yields. The East Midlands and Wales have respective average house prices of £136,403 and £133,297 compared to the UK average of £161,000.

Looking ahead, Mr Heron expects confidence in the buy-to-let market to be maintained during the next year.

"We have identified a significant upsurge in landlords' confidence and activity over the past three months or so," he said.

"They are actively growing their portfolios and indeed in our landlord survey they telly us that over the next 12 months they plan to increase their property holdings by around six per cent, on the back of growing tenant demand and an expectation that rents will rise."

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