Property prices paid by investor landlords eased slightly in August compared to the month before, but were still almost £8,400, or 5.5%, higher than in April new research reveals.
Paragon Mortgages Buy-to-Let Index for September shows relatively strong increases in landlord property prices in marked contrast with the months between November 2004 and April 2005, when property values were static or declined slightly.
In August, landlords paid on average £160,984 for a typical investment property, compared with £152,622 in April this year and £141,765 in August 2004 - up 13.7% over the year says the research.
John Heron, managing director, of Paragon Mortgages says: "The market took a breather in the winter and early spring 2004-5, which translated into flat property prices paid by landlords. More recently, there’s been growing evidence that landlords are willing to engage in transactions and that is having the effect of moving prices of investment properties purchased gently upwards."
This month sees a modest easing of prices and rents, attributable to a ‘spike’ in the July average caused by some unusually high value transactions completing in the month. August is in line with the longer term trend, however."
Heron adds: "The general trend in rents has been resoundingly upwards over the past 12 months. Since August last year, rents are up by almost £1,000 or 10.5%, more than three times the rate of inflation."
The sustained buying activity and the higher prices that go with it reflects renewed confidence in the private rented sector on the part of landlords, says the lender.
Heron says landlords are watching the market carefully to gauge changing demand for different types of rented accommodation. “If the neighbourhood hospital is expanding, or there is an influx of students at the local college or university, or an area is growing in popularity with workers at a new office block, landlords will regard this as a buying signal,” he adds.
August sees a significant change in the regional ‘pecking order’ in terms of average yield. Wales, at 7.37%, has usurped Yorkshire in top spot in terms of highest yield. Yorkshire has been at or near the top of the list for most of 2005 but has slipped into fourth place this month, at just under 7%. The West Midlands remains in second position, with a yield of 7.31%.
In terms of total returns (taking into account both capital appreciation plus average rental return on a property bought 12 months ago), the northern regions of the country remain the best performers with the North in first position at 40.2%, Yorkshire second at 39.9%, and the North West 37.1%. This is mainly attributable to the above average level of property price inflation over the past 12 months.
Nationally, the average total annual return stands at 20.3%, compared with 22.3% in July.
John Heron adds: "The summer is traditionally a somewhat quiet time in the housing market, but with renewed confidence, good tenant demand and the UK’s long term structural shortage of decent accommodation, it’s no surprise that investors continue to buy."
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