Residential property investors remained active throughout 2006, benefiting from an uplift in capital values, stable rental yields and a consistently positive economic backdrop, Paragon revealed.Demand from tenants also remained strong, with particular growth from inward migrants to the UK.
Over the past 12 months, the average buy-to-let property has risen in value by 5% or £7,736, according to latest figures from Paragon’s Buy-to-Let Index. This compares with an uplift of 0.8% or just £1,277 over the previous 12 month period.
Nigel Terrington, chief executive of specialist buy-to-let provider Paragon, commented: “In terms of capital appreciation alone, the average buy-to-let investor has made over £7,700 this year just by owning a rental property. On top of that, he has generated almost £10,000 in rental income, an excellent total return on investment of £17,700 or 11.4% over the past 12 months. 2006 has definitely been a good year for most buy-to-let investors.”
Recent government statistics provide further evidence that the private rented sector will continue to grow apace.
According to HM Treasury estimates, new immigration will continue at an annual rate of between 185,000 and 190,000 over the next three years, higher than previously expected, on the back of which the estimate of sustainable growth has been increased from 2.5% to 2.75% from 2007 onwards.
Nigel Terrington said: “Inward migration is a key driver of tenant demand. We know that less than 20% of migrants become home owners within five years, which means that a net influx of people, particularly from Central and Eastern Europe, will have a direct impact on the private rented sector.”
“Indeed, recent research of our landlords indicates that almost a third believe that tenant demand is either growing or booming, and the majority believe it is stable.”
In this environment of growing tenant demand, investors are expected to channel significant additional investment into the private rented sector over the coming months. Paragon’s latest landlord survey indicates that investors expect to grow their portfolios in numerical terms by 6% over the next 12 months.
“Many of them see residential property as a good investment class for long term retirement provision. They like property because they understand it and they can control the outcome – unlike stock market investments.”
Indeed, another recent survey indicated that eight out of ten mortgage brokers expect to see an increase in buy-to-let lending in 2007.
“With tenant demand set to remain strong and investors continuing to be confident about residential property investment, 2007 is set to be another busy year for buy-to-let,” concluded Nigel Terrington.
