Annual returns from buy-to-let investment properties have reached a 28-month high, significantly outperforming the FTSE All Share Index, according to Paragon Mortgages.
Paragon says the latest rate cut by the Bank of England is a positive factor for landlords, but says it is unlikely to change investor behaviour as demand for rental property is expected to underpin the market in the coming year.
Paragon’s latest Buy-to-Let Index shows average total returns for buy-to-let investors reached 21% in 2007. During the same period, the FTSE All Share Index rose by just 7.4%.
The Index estimates the average landlord made more than £34,500 over the past year. Strong rental income, stable yields and high house prices have all contributed to growth, according to Paragon.
Average rents rose by 6% in the past three months and 17% over the past year, with the average yield now standing at £11,300. Property prices have also risen significantly, by around 15.3%, according to Paragon, though recent reports suggest house prices may be falling in real terms.
Commenting on the buy-to-let outlook, John Heron, managing director of Paragon Mortgages, says: “Looking forward, we can expect further upward pressure on rents to continue as first-time-buyers remain in rented accommodation for longer.
"At the same time, property prices are expected to ease in some parts of the country, which will represent an opportunity for astute landlords who can acquire additional properties at attractive prices and let them out at a good return.”
He says landlords will welcome the latest interest rate cut, but says long-term trends in tenant demand are more important to the market than short term interest rates.
“With ONS forecasting the UK population will reach anything from 85 to 108 million by 2081, there will be no let-up in the pressure on the housing stock.
"Over the medium to long term, the proportion of the population living in rented homes will grow, leading in turn to further expansion in the private rented sector,” Heron explains.
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