Assetz® News - Buy-to-let investors snapping up cheaper properties

Buy-to-let investors snapping up cheaper properties

26th April 2006 |

Buy-to-let investors are reportedly getting their hands on properties for much less than they were a couple of months ago, after the average price for an investment property eased a little in March.

A new report suggests that this is largely down to sustained tenant demand for properties at the lower end of the price range as well as a sudden surge in activity from small-scale investors hoping to capitalise on the buy-to-let boom.

In the three months until March, house prices were rising steadily, but the new data from Paragon Mortgages points to a fall of 1.5 per cent in the price paid by landlords during March.

A mark of the strength of the sector, however, property values are still some 5.5 per cent higher than they were a year ago.

The key to successful buy-to-let investment is responding to the demands of the market and it would seem landlords are doing exactly this. With a growing number of young adults without children looking to rent a property for a number of years before buying, smaller houses are becoming increasingly popular.

John Heron, managing director of Paragon Mortgages, observes that singletons and young couples are searching for "clean, simple rental properties to fill their accommodation needs" and as investors have responded to this, it is perhaps inevitable that there has been a fall in the average price paid.

At the same time, rents are now marginally lower at £10,082 and yields have adjusted to 6.26 per cent, but Mr Heron points out that there is an underlying confidence supporting the entire sector.

"What is important is that at these yields landlords are confident to buy - and they are buying with a vengeance."

Mr Heron went on to say that landlords generally approach the buy-to-let sector with a ten-year perspective and that in the long-term, they remain convinced that a combination of rental income and capital appreciation will prove lucrative.

The London market is rarely associated with a strong buy-to-let sector, but the new data suggests that it has performed fairly well. High property prices in London mean that yields are typically low, but it seems that landlord activity is still high.

Economic confidence has returned and interest rates are stable while employment levels are fairly high in and around London. Inevitably, demand for rented accommodation is also high and Mr Heron suggests that this is "a sure signal" that investing in rented sector is a sensible option.

Interestingly, the East Midlands now offers the highest yield, with Wales slipping into second place. In terms of total returns, the north offered a return of 39.5 per cent on a property bought 12 months ago, putting it comfortably ahead of the West Midlands, Wales and Greater London with returns of 29.5 per cent each.

Confidence is clearly high in this popular investment sector, with buy-to-let investors typically expecting to increase their property holdings by around six per cent this year.