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Rental yields hit two-year high

Monday, 23 June 2008 12:00 AM

Rental yields May increased to their highest level since the start of 2006, according to Paragon Mortgages' buy-to-let index.

The average landlord can now expect an average yield of 6.4 per cent.

Landlords' rental incomes have increased steadily over the past year - rising nearly 12 per cent over the past twelve months and six per cent over the past six months.

Meanwhile, property values have risen 7.5 per cent year-on-year, although by just 0.2 per cent over the past six months.

This comes despite a wider fall of 4.4 per cent in the wider market over the year to May, according to statistics from Nationwide.

"Strong tenant demand has been pushing up rents, allowing landlords to achieve better yields than they've seen for more than two years," said John Heron, managing director of Paragon Mortgages.

"With lower property prices and higher rents, the yield they can achieve on a carefully selected and well managed investment property can be significantly higher than other forms of investment."

Landlords now have an average portfolio gearing of just 36 per cent according to Paragon, and consequently are well placed to free up equity to expand their portfolios.

Some 74 per cent of investment landlords said that an ability to get a good deal on properties encourages them to buy, even in the current climate.

Cheaper property prices outweighed the potential deterrent of higher financing costs in influencing their purchasing decisions - with 14 per cent of landlords stating they had immediate plans to add properties to their portfolios.

"Landlords who are able to take advantage of cooling house prices are fulfilling a vital social role," continued Mr Heron.

"Investors remain better placed to buy property than most owner occupiers or first-time buyers, and people still need places to live.

"Social housing is unable to meet short-term demand for homes, so we can expect the pressure on the private rented sector to continue in all parts of the country."

Chris O'Toole

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