Buy-to-let activity has remained consistently strong throughout 2007, allaying concerns expressed in some quarters that rising borrowing costs might dissuade investors from growing their portfolios and retaining their commitment to the market.
Indeed, the evidence continues to show that on the back of higher interest rates, landlords are able to increase rents paid by the growing number of people who live in rented accommodation. At the same time, landlords are responding to this strong demand for rented homes by purchasing new properties for their portfolios.
Average rents charged on a typical buy-to-let property have risen by 6.5 per cent over the past quarter, from £9,942 in January to £10,591 in April, according to the May edition of Paragon Mortgages’ Buy-to-Let Index. Total returns (taking account of both capital appreciation and rental yield) are also following an upward trend, increasing from 8.0 per cent in January to 11.6 per cent in April. Several regions, including East Anglia, South West, Wales and the West Midlands, achieved total returns that were significantly above the national average.
John Heron, managing director of Paragon Mortgages, said: “The market remains buoyant for both intermediaries and lenders, with good volumes of business for both property purchase and for refinancing of existing portfolios.
“Investors are encouraged by the strength of tenant demand, which enables them to increase rents on existing tenancies when they are renewed and apply a higher rent to new tenants than they would have charged three or six months ago. As a result, total returns are higher now than they were in January and yields remain firm at 6.1 per cent for the third successive month.”
In a recent survey conducted on behalf of Paragon Mortgages, almost a third of landlords said they were reacting to rising borrowing costs by increasing rents, while another 43 per cent reported they are taking no specific action as a result of the interest rate rises.
As further evidence of their confidence in the future, in the survey 12 per cent of landlords said they were increasing their involvement in buy-to-let as a reaction to the rises in borrowing costs.
Heron added: “Landlords are adding to their portfolios in response to this increase in demand, especially as inward migration, the student population and household numbers continue to grow unabated. Government statistics for household growth continue to be revised upwards, and the majority of newly created households tend to resort to rented accommodation.”
