Prices paid by residential property investors were up only marginally, by 0.5%, in June. This is a slightly larger increase than last month’s 0.1%, but remains much lower than the increases of 4.5% and 2.5% witnessed in March and April. Landlords are now paying an average property price of £137,849, up by just over £700 from £137,112 last month.
At the same time, rental incomes at £9,603 are down slightly this month from the record figures of £9,867 seen in May and £9,953 in April, partly reflecting the traditionally quieter summer period in the housing market. However, rents are still considerably higher than they were for most of 2003: this month’s figure is 5.2% higher than in June 2003 (£9,133) and 6.8% up on the beginning of 2004, when rental income averaged £8,989.
Graph 1: BTL Property Prices and Rental Incomes (Average: England and Wales)
John Heron, Paragon Mortgages’ managing director, comments: “Over the past few months, we’ve seen landlord property values start to stabilise across the UK. Prices paid by residential property investors are still increasing, but only very slightly: in June they were up by just 0.5%, in contrast with the large rises seen in recent months, when investors had to compete with owner-occupiers in a busy market with limited stock available. The supply shortages of the spring seem to be over, and now investment properties have reverted to their customary trend of rising less rapidly than the housing market generally, as the strong demand from owner-occupiers has started to tail off. Landlords are typically able to strike better deals than people buying their own home as they are not emotive purchasers.”
Average house price, June 04 12 month change
June ’03 ‡ ’04 Average change over past three months Change over past month
Paragon buy-to-let £137,849 16.9% 3.1% 0.5%
Halifax £159,735 22.5% 3.4% 1.2%
Nationwide £151,524 19.1% 3.8% 0.9%
Annual house price inflation on buy-to-let properties has decreased from over 25% in April to 22.7% in May and to 16.9% this month, making Paragon’s figure lower than the latest data published by Halifax and Nationwide. This provides evidence that as housing stocks grow and competition between buyers abates, landlords are once again getting better deals on properties than owner-occupiers.
Property Value June 2003 Property Value Appreciation Rental Income June 2003 Total Gross Return Return on Initial Investment
North £51,779 £25,390 £5,413 £30,804 59.49%
Wales £81,113 £28,184 £7,219 £35,403 43.65%
Yorkshire £73,443 £24,671 £7,026 £31,697 43.16%
East Anglia £98,233 £27,791 £6,507 £34,298 34.92%
South West £136,026 £34,976 £11,115 £46,091 33.88%
East Midlands £106,771 £26,432 £8,752 £35,184 32.95%
West Midlands £99,226 £17,432 £7,763 £25,195 25.39%
North West £80,615 £7,727 £7,769 £15,496 19.22%
South East £146,285 £17,354 £10,328 £27,682 18.92%
Greater London £206,283 £13,877 £13,973 £27,850 13.50%
National £117,902 £19,948 £9,133 £29,080 24.67%
Landlords continue to enjoy strong overall returns, with total returns generated since June 2003 (on an average property purchased that month) of almost 25% - a total of £29,080, comprising £19,948 in capital appreciation plus £9,133 in rental income, on a property worth £117,902 at purchase.
Seven out of ten regions provide landlords with a total annual return in excess of 25%. The North overtook East Anglia in generating the highest overall return, of nearly 60%. Wales offered the second highest total return to investor landlords of 43.7%, while Yorkshire & Humberside was in third place, with a similar level of return of 43.2%. The total annual return exceeded 30% in three other regions – East Anglia (34.9%), South West (33.9%), and East Midlands (33.0%).
Nationally, landlord yields stand at 7.0% this month, slightly lower than in recent months.
Seven out of ten regions saw property values increase, with Yorkshire & Humberside up sharply by 12.1% to £98,114, the North up 11% to £77,169 and Wales up 10% to £109,297. Rents also increased in five regions, with the largest increases witnessed in those regions with the highest property price increases.
There was an easing of yields nationwide this month, with only East Anglia experiencing a small increase from 7.29% in May to 7.30% in June. As previously, the highest yields are achieved in the North and in the West Midlands.
Region June 2004 May 2004 April 2004
TOP YIELDS
(property values)
North 8.16%
(£77,169) 8.67%
(£69,494) 8.73%
(£62,465)
West Midlands 7.75%
(£116,658) 8.06%
(£110,081) 8.00%
(£114,304)
BOTTOM YIELDS
(property values)
Greater London 6.55%
(£220,160) 6.95%
(£229,899) 6.90%
(£236,183)
South East 6.53%
(£163,639) 6.66%
(£163,173) 6.64%
(£164,596)
