Yields Stable as Investors Prepare for Buying Spree

Buy-to-let yields remained stable at 6.4% for the second consecutive month in June, according to Paragon Mortgages' Buy-to-Let Index.

Average UK rents, which had been rising rapidly, have stabilised just short of £1,000 a month, and remain 9.3% higher than a year ago.

Regions achieving the highest yields in June were Wales (7.6%), the North (7.4%) and the North West (7.3%), according to the index.

Over the coming months, the buy-to-let market will be a vital source of stability in an uncertain housing market, according to Paragon.

Tenant Demand Strong

Returns remain attractive and strong tenant demand is encouraging landlords to retain property, whilst also looking for opportunistic purchases.

The average portfolio gearing is less than 40% - giving landlords plenty of room to free up equity for further investment.

John Heron, managing director of Paragon Mortgages, said: "For the vast majority of landlords, a slow housing market is nothing new. They recognise the counter-cyclical nature of buy-to-let and many landlords have held property through previous housing cycles. Falling prices are spooking first-time buyers and they are delaying house purchase, with tenant demand at high levels as a result."

He added: "During the downturn of the early 1990s we witnessed mass repossessions because there was little alternative to house purchase and young buyers had borrowed above their means. Today's modern and vibrant private rented sector provides people with a viable alternative to owner occupation and buy-to-let provides housing for young people who would otherwise have little choice but to buy and be financially stretched."

Buying Spree

Further evidence that established landlords are preparing for a buying spree came from a poll conducted by the Property Investor Show.

It showed that 70 per cent of investors were looking to add to their portfolio this year buying both at home and abroad.

It reveals that 37% are still planning to buy investment property in the UK, 25% will be purchasing abroad and 8% in both the UK and overseas.

Two thirds of investors believe that rental yields are currently a greater consideration than capital growth compared to only 40% in 2007, as rental yields hit a two year high of 6.4% in May.

The majority of investors (70%) believe that house prices are going to fall this year, with 25% predicting that the drop is going to be at least 9%.

However, of those predicting a fall in prices, a third believes that the market will recover by this time next year.

Nick Clark, Managing Director of the Property Investor Show, said: "Although investors hold a less bullish view of house prices and capital growth than this time last year, it is clear that professional investors are still confident in the longer term returns of bricks and mortar and are intending to expand their portfolios this year.

"They have recognised that the demand for rented accommodation is currently the greatest consideration and is boosting rental yields considerably, particularly in London. Landlords can take advantage of the lower prices coupled with rising rents and they are certain to achieve good returns over the long term."

Several lenders have reduced their rates over the last week and there are more deals for cash-rich borrowers.