Landlords' rental incomes have increased steadily over the past year - rising nearly 12% over the past twelve months and 6% over the past six months. Meanwhile, property values have risen 7.5% year-on-year, although by just 0.2% over the past six months.
John Heron, managing director of Paragon Mortgages, said: "Strong tenant demand has been pushing up rents, allowing landlords to achieve better yields than they've seen for more than two years. With lower property prices and higher rents, the yield they can achieve on a carefully selected and well managed investment property can be significantly higher than other forms of investment. With an average portfolio gearing of just 36%, landlords are well placed to free up equity to expand their portfolios."
Falling property prices and rising tenant demand are spurring professional landlords to expand their portfolios. In Paragon's Trends survey of over 200 landlords, 74% said that an ability to get a good deal on properties encourages them to buy, even in the current climate. Cheaper property prices outweighed the potential deterrent of higher financing costs in influencing their purchasing decisions - with 14% of landlords stating they had immediate plans to add properties to their portfolios.
With extra demand for rental properties coming from would-be first-time buyers who, due to a lack of confidence in the current housing market, have chosen to delay house purchase, the private rented sector is set to grow as it picks up the slack from other forms of tenure.
John Heron concluded: "Landlords who are able to take advantage of cooling house prices are fulfilling a vital social role. Investors remain better placed to buy property than most owner occupiers or first-time buyers, and people still need places to live. Social housing is unable to meet short-term demand for homes, so we can expect the pressure on the private rented sector to continue in all parts of the country."
