Annual returns on buy-to-let investments have trebled during the course of 2007, according to Paragon Mortgages.
Increasing demand for rented properties is the main reason for growing rents, according to Paragon, which have increased rental yields and boosted total returns.
Paragon’s January buy-to-let index reveals rents have risen by 19% during 2007, with exceptional growth of 8% in the final quarter. Tenants now pay an average rent of £965 per month, compared with £808 at the beginning of 2007.
The rise in rents has brought rental yields up to 6.2%, after remaining stable at 6% for much of the year.
As a result of these rises, coupled with rapidly growing property prices in the first half of 2007, total returns have reached 21.3%, significantly higher than 2006, which saw an average return of just 7.2%.
John Heron, managing director of Paragon Mortgages, comments: “Buy-to-let provides accommodation for many people, particularly in the current environment with people choosing not to buy but rent instead.
“This presents a good buying opportunity for investors, who remain upbeat about the future. A massive 90% of them plan to hold on to their portfolios for the long-term and 40% of them intend to invest more in the private rented sector this year.”
Heron says buy-to-let investment has counter-cyclical characteristics, which means it will remain resilient to lower economic confidence as a result of the credit crunch.
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