In Paragon Mortgages’ latest Buy-to-Let Trends Survey, landlords report that gross yields on their rented properties have risen from 7.9% to 8.1%, while on a net basis (after running expenses but excluding finance costs) yields are up from 5.7% to 5.8%, reversing the trend of the past 12 months.
Landlords expect gross yields to remain steady over the next 12 months at 8.1%. Net yields are forecast to improve from 5.8% this quarter to 6.0% in a year’s time, helped by good control of outgoings and economies of scale – the average portfolio size of landlords polled is now 11 properties.
Average portfolio size has risen by two properties over one year, from nine properties in September 2002 to 11 now (+22%). Landlords anticipate growing their portfolios by a further 8.2% over the next 12 months, to 11.9 properties.
In terms of value, landlord property portfolios rose by 2.8% to £748,600 from £728,100 3 months ago. The average landlord expects to grow their residential investment portfolio by 8.4% over the next 12 months to almost £811,500 (taking account of both house price inflation and property investments).
Landlords were also asked how much they expected their existing residential portfolios to increase in value, based on changes in property prices alone, over the next 12 months: the expected net increase was 3.0%.
John Heron, Managing Director of Paragon Mortgages comments:
“In this quarter’s survey, landlords report improving yields, both gross and net, reversing the generally downward trend we have witnessed over the past year or so. House price inflation is clearly stabilising, which is starting to have a positive impact on yields, while tenant demand for the right type of property in the right location continues to be sound. Landlords also remain positive about prospects for the year ahead, anticipating growth in their portfolios of 8.2% by number of properties and 8.4% by value.”
As evidence of the buoyant demand for rented accommodation, landlords are finding tenants after an average of 3.43 viewings, slightly more quickly than three months ago, when the figure stood at 3.60 viewings. The average property remains unoccupied for 2.8 weeks (unchanged since June), although landlords with larger portfolios are generally finding tenants more quickly than those with just one or two properties (2.6 weeks compared with 3.3 weeks).
The average loan to value (LTV) ratio for landlords remained at 41%, in line with last quarter, providing evidence that investor landlords are low risk borrowers for lenders. Only 0.5% of borrowers have an LTV in excess of 90%, and more than two-thirds have LTV of 50% or less.
Most landlords with interests in commercial property expect their portfolios to grow or remain stable. Average growth of 3.2% is expected in commercial buy-to-let over the next 12 months.
One in ten (10.3%) of respondents has one or more investment properties in Continental Europe. Most (77%) of them have just one property and the remainder (23%) up to ten properties. Interestingly, 25% of investor landlords expect to own properties abroad within 12 months, suggesting that the purchase of buy-to-let properties on the Continent is on the agenda for about 15% of landlords who currently own no such properties.
By far the most popular place for investment properties abroad is Spain, accounting for 65% of the total, while France makes up a further 15%.
Paragon Mortgages’ Property Investor Confidence (PICT) Index – based on growth in portfolios since May 2002 and landlord growth expectations for the coming year – gives a figure of 119.5, marginally up on 119.2 three months ago.
