Landlord rental incomes have risen by 1.6% over the month, rising from £10,297 in December 2004 to £10,459 in January 2005. Rental incomes are 16.4% higher than the £8,989 recorded in January 2004. This increase in rents translates into an increase in landlord yields, which at 6.76% are now at their highest level for 6 months.
Average property values are now £154,672 as compared with £152,834 in December, an average increase of 1.2%. Over the last twelve months average property values have increased by 24.6%.
John Heron, Managing Director of Paragon Mortgages, says: "Landlords have seen a positive start to this year, after a year in which they earned very good average returns on their residential investment portfolios. At the start of 2005, rental incomes are rising, helped by robust levels of tenant demand. This is in part attributable to a slower owner-occupier market and the ongoing impact of affordability constraints on first time buyers. This is now clearly feeding through into higher yields, which have followed a generally upward trend since last September."
Property Value January 2004
Property Value Appreciation
Rental Income (January 2004 -2005)
Total Gross Return
Return on Initial Investment
Yorkshire
£77,923
£45,552
£6,294
£51,846
66.53%
North
£61,344
£29,232
£5,497
£34,728
56.61%
Wales
£97,010
£44,152
£7,552
£51,704
53.30%
North West
£84,126
£30,283
£7,345
£37,628
44.73%
East Anglia
£101,272
£29,288
£7,677
£36,965
36.50%
Greater London
£211,651
£52,535
£13,558
£66,094
31.23%
South West
£145,388
£31,327
£11,643
£42,970
29.56%
South East
£151,401
£24,576
£10,025
£34,600
22.85%
East Midlands
£111,611
£12,660
£8,483
£21,142
18.94%
West Midlands
£110,865
£553
£8,238
£8,791
7.93%
National
£124,128
£30,544
£8,989
£39,533
31.85%
Average total annual returns achieved by landlords rose in January, from 31.3% last month to 31.8%. This comprises a total of £39,533, made up of £30,544 in capital appreciation plus £8,989 in rental income, on a property worth £124,128 at purchase. This improvement comes on the back of higher returns in a number of regions, particularly in Yorkshire (up from 44.6% to 66.5%), Greater London (up from 22.1% to 31.2%) and the North (up from 51.3% to 56.6%). Smaller rises were seen in the South West, East Anglia and the North West.
John Heron continues: "Total annual returns generated by landlords are very healthy, with most parts of the country doing well. After a slight dip last summer total returns have risen consecutively over the last six months reflecting nationwide increases in property values and rental incomes."
House price inflation on properties purchased by landlords continues to be above the rate of increase in the housing market generally.
In terms of the regions, rental incomes increased across six regions, with the North up sharply by 8.9% to £6,265. Rents in Wales rose by 7.3% to £9,647 and also in Yorkshire by 6.7% to £9,343. Smaller rises were seen in the North West, Greater London and the South East.
Due to a widespread increase in rental incomes, yields also rose across the majority of regions despite further increases in property values. For the second month in a row Greater London saw the largest increase in yields. Greater London landlords are now achieving yields of 6.1% on an average property worth £264,186. Yields in Yorkshire rose to 7.6%, the West Midlands to 6.8% and East Anglia to 6.4%. In the South East yields rose for the third month in a row to reach 6.6%. Those regions experiencing a fall in rental yields witnessed the largest increases in property values.
John Heron continues: "After some softness earlier last year, landlord yields now seem to be moving upward, with investors currently achieving higher rents in 6 out of 10 regions. This reflects strong tenant demand in most areas for the right type of property, which tends to be the modest home targeted at young professionals, sharers or key workers. Prices paid by landlords continue to climb, but uncertainty in the owner-occupier market is fuelling demand for rented property and placing upward pressure on rents, which have increased at a faster rate than house price inflation."
