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Rising rental yields signal strong buy-to-let market

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The buy-to-let market appears to be going from strength to strength, following reports of rising rental yields for yet another month.

Figures released by Paragon Mortgage indicate that the average rental yields rose from 6.8 per cent to 6.9 per cent last month, suggesting a strong level of activity in the marklet as large, with property investotrs expanding their portfolios and a greater number of tenats continuing to fuel demand.

In particular terraced and detached properties offered the highest yields, with terraced properties at 7.4 per cent and detached houses at 7.1 per cent. Though slight, the difference may be evidence of a growing number of buy-to-l;et investors looking towards terraced properties to build upon their existing portfolios, particularly in parts of the country in which this type of housing is most prevalent. Semi-detached houses and flats produced slightly lower rental yields of 7.0 per cent and 6.4 per cent respectively, but it is thought that these properties care stull relatively popular in notoriously expensive London, where they are fairly common.

Regionally, Yorkshire and the north-west have proven the best areas of the country for buy-to-let mortgage landlords over the past year, the result of a combination of rises in house prices and rental yields. On average an investor who bought an average property twelve months ago would have generated a total return of 76.4 per cent in Yorkshire and 42.7 per cent in the North West. Across the country at large the average total return was 21.3 per cent.

"The rental market is awash with people in their twenties and thirties who are delaying their first home purchase and choosing to rent," said John Heron managing director of Paragon Mortgages. "Due to sustained demand rental incomes have risen more rapidly than property values, which have in turn had a positive impact on rental yields."

These developments suggest that many would-be property buyers, finding themselves priced out of the market, are finding themselves drawn towards renting, while steadying house prices are given landlords the opportunity to expand their portfolios and cater for tenants. This idea is compliemented by the fact that mortgage lending, though stable, is currently at a relatively low level. Figures released this week by the Building Societies Association, the Major British Banking Groups, and the Council of Mortgage Lenders all point to "a new equilibrium, with a lower, but more stable, level of activity".

Further more the Council of Mortgage Lenders found that gross mortgage lending was £20.1 billion in March up 13 per cent on February, but 19 per cent lower than the same month last year.

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