Trends in buy-to-let remain positive as landlords continue to increase their involvement in the private rented sector on the back of steadily rising demand for rented accommodation: household numbers are growing and are projected to continue to grow as a result of a changing population demographic and inward migration.
The July edition of Paragon Mortgages’ Buy-to-Let Index shows that average rents achieved on residential investment properties have risen significantly over the last three months, by £351 or 3.48%. The typical gross rental income on a property rose by more than £240 or 2.39% to £10,433 in June alone, compared with £10,189 in May.
Investment property values also continue to edge up, with an increase of 2.27% over the month and 7.29% over the quarter, from £161,039 in March to £172,772 in June.
With property values rising and rents either stable or rising, landlords have benefited from an increase in average total annual returns on their buy-to-let investments. In percentage terms average total returns rose from 11.89% in January to 16.51% in June.
John Heron, Paragon Mortgages managing director, explains: “The UK population is growing, unlike many Western European countries, by around 0.3% per annum, according to National Statistics. A key element of this is the influx of migrants, with net migration of 223,000 in 2004 and perhaps rather more than that in 2005. It looks likely that Government projections for a net influx of around 145,000 migrants annually will be comfortably exceeded – the British economy is doing well and there are plenty of jobs for people from EU Accession States and many other countries.”
“Housing demand is growing, with more single person households, higher numbers of students as well as the effect of immigration. The Department for Communities and Local Government forecasts 209,000 households need to be formed per annum, with immigrants accounting for perhaps a third of new households. Such newly formed households are most likely to live in rented accommodation – indeed, the CML reports that only 20% of migrants become homeowners within 3 years. In response to this growth in demand for rented properties, landlords are actively building their portfolios in all parts of the country.”
Average rental yields stood at 6.04% in June, up slightly on the previous month’s 6.03%, although there continue to be variations between regions. Rental yields this month remain higher in the regions where property prices are lower. On the other hand, in the South East and Greater London, yields are lower due to significantly higher property prices.
The South West and Wales have the highest yield, at 6.48% and 6.47% respectively, while the South East and Greater London are lowest, at 5.83% and 5.78%.
Regionally, Greater London has achieved the highest total annual return for the second consecutive month at 37.69%, closely followed by East Anglia (37.61%) and the North (32.91%).
John Heron said: “Trends in buy-to-let are undoubtedly very positive at the present time. We are seeing robust activity both from major landlords and also from the retail investor, who will often purchase to augment their long term investment portfolio or to supplement their pension. Long term trends in terms of household formation and inward migration point to a steady growth in the role of the private rented sector in meeting people’s housing needs and investors are responding to this by increasing their involvement proactively.”
