Paragon Mortgages says yields in the private rented sector have continued to improve as landlords experience growing levels of tenant demand.
Paragon’s Trends research, a panel-based survey of experienced landlords, showed that average yields rose to 6.4% in the second quarter of 2009, up from 6.2% in the first quarter. This is the second successive quarter that yields have risen after a lengthy period of stagnation.
The rental yield, which is the property’s rental income as a percentage of its current capital value, is an important factor in property investors’ purchasing decisions as it generates cashflow, allowing them to meet mortgage commitments and other expenses relating to their property.
Landlords in the Midlands achieved the strongest yield at 7.4%, followed by those in the North East (6.8%) and North West (6.7%). Other areas included Wales (6.0%), Scotland (6.0%), the South West (5.9%) and the South East (5.8%)
Landlords continue to experience strong levels of tenant demand and believe that demand will continue to increase in the coming year. Nearly a third of respondents (30%) predict tenant demand will increase from current levels over the next 12 months, with half (50%) expecting demand to remain at existing levels. A fifth of landlords anticipate an easing off of tenant demand during the period.
John Heron , Paragon Mortgages’ managing director, said: "Landlords have enjoyed increased levels of tenant demand throughout 2008 and 2009 and it looks like that will continue into 2010. A lack of available mortgage finance makes it difficult for potential homeowners to purchase property and many people remain unwilling to commit to purchasing a home in the current house price environment.’
He adds: "In addition, landlords continue to experience strong demand from those sectors of the population that have historically driven the growth of the private rented sector, such as students, migrant workers and young, mobile professionals. In some markets, this is feeding through to rental increases, allowing landlords to improve the yield on their property.
"A strong yield level will continue to attract investors to the private rented sector, particularly as the returns from savings accounts are poor and the stock market remains volatile. The challenge for these investors is accessing finance to fund their purchases as many lenders in the buy-to-let market have either closed to new business or have reduced their focus on the sector. The Government has launched a number of initiatives to recommence lending in the mainstream mortgage markets, but niche sectors, such as buy-to-let, also need to be catered for as they play an important role in the UK mortgage market."
