The rise in yields occurred on the back of significantly higher rents achieved by landlords, which rose by 6.0% to £9,651 - a higher percentage than the growth in property values, which were up 4.5% this month.
John Heron, managing director of Paragon Mortgages, says: “With demand for rented accommodation from tenants steady or growing in many areas, landlords have been able to achieve higher rental yields, notwithstanding the continued rises in property values we’ve been seeing recently.”
After an increase of 3.0% in February, last month’s rise of 4.5% takes average property prices paid by landlords to £133,658 – up by 8.3% over the past quarter, from December’s figure of £123,372. John Heron explains: “After a quieter period towards the end of 2003, the housing market has gathered momentum since the beginning of this year, and prices for all types of property are rising strongly in most parts of the country. While landlords are frequently able to negotiate more attractive prices than owner-occupiers – who are more emotionally involved than investors – in the end landlords can’t entirely buck the trend. The fact that growing numbers of professional investors are willing to pay higher prices for properties demonstrates that the tenant demand is there and that they are confident in the future of buy-to-let. Our landlords expect to grow their portfolios by 10.1% to an average of 13.1 properties over the coming year.”
“Rising property prices,” comments John Heron, “mean that investors are benefiting from good capital appreciation on their existing property portfolios. We’ve seen total returns rising strongly, from an average of less than 20% in January to over 30% this month.”
This month, the highest overall return occurred in the East Midlands, where landlords have generated a return of 55.6% on a typical property bought 12 months ago, while Wales and East Anglia also produced returns in excess of 40%, of 47.2% and 45.3%. “Even the lowest yielding regions gave yields of around 25% or more, a pretty good return on your investment, over a period in which interest rates were consistently below 5%. While the FTSE was recovering well over the same 12 months, it still only rose by 21%.”
Rental incomes rose from £9,105 in February to £9,651 in March, an increase of 6.0%, and are 11.0% higher than the figure of £8,696 one year ago.
Five out of ten regions saw yields rising, with Greater London up from 6.42% to 6.73%, the South East up from 6.45% to 6.62%, the East Midlands up from 7.32% to 7.46%, East Anglia up from 7.15% to 7.27%, and Yorkshire & Humberside up from 8.09% to 8.16%. The North saw yields steady at 8.93%. Yields slipped in Wales to 7.46%, the North West to 8.33% and the West Midlands to 7.72% - with all the declines seen in lower than average yielding regions.
This month, the highest yielding regions continue to be the North and North West, which are also the regions with the lowest average house prices. The South East took over from Greater London as the part of the country with the lowest yield, although both regions saw healthy rises in yield, rising from 6.45% to 6.62% in the South East, and from 6.42% to 6.73% in Greater London.
John Heron says: “Yields in Greater London have improved quite significantly this month, which is welcome news for landlords in the capital, where the buoyancy of house prices has tended to erode rental yields.”
