Residential landlords have protected themselves from the higher cost of borrowing - triggered by rising interest rates - by reducing the gearing of their portfolios, according to buy-to-let lender Paragon.
Analysts argue the credit crunch might see some small lenders ditch their portfolios, but research by Paragon suggests small landlords have even lower gearing ratios than their professional counterparts.
A survey carried out by the firm claims the proportion of debt to equity in a landlord's portfolio has fallen considerably in the last five years, cancelling out losses from falling rental yields.
Nigel Terrington, chief executive of Paragon, says: “Landlords do not have 100% debt, in fact their average debt is just 38% of their portfolio value and their effective yield, even after financing, remains very attractive.”
The research also says landlords with three or fewer properties have even lower gearing ratios, at an average of 25%, indicating it is unlikely small landlords will leave the buy-to-let market if rental yields contract, despite some analysts’ suggestions to the contrary.
“Doom-mongers simply look at a 6% yield and a typical mortgage repayment rate of just over 6%, then assume that landlords are making a loss after financing.”
However, market commentators say many fixed rate mortgage deals are due to end in the coming months and many landlords may find the costs of refinancing unattractive in the current interest rate environment.
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