Tenant demand pushes rents to new peak

Strong tenant demand for rented accommodation has pushed the average rental income generated by landlords to a record high, according to Paragon’s October Buy-to-Let Index. Average rents hit £11,066 during the month, 10.2% higher than a year ago.

Yields have continued to remain steady at 6%, while total annual returns on a property purchased 12 months ago averaged 15.5%, up from 14.2% in September.

The October figures highlight the skills of buy-to-let investors in choosing property that offers sustainable and profitable income over the long-term, in addition to the strong counter-cyclical qualities of buy-to-let property. Buy-to-let investors look for property in established communities with good local amenities, strong transport links and proven tenant demand.

John Heron, Paragon’s director of mortgages, says: “Much of the recent negative media comment on the buy-to-let sector has confused genuine well-researched buy-to-let investment with property speculation.”

“There is solid and growing demand for decent, affordable rented homes in all parts of the country, but it is essential landlords purchase the type of property that meets tenants’ needs and expectations. They want homes that are conveniently located for their place of work or study, with good transport links and local amenities. These figures show that professional landlords continue to invest in the types of property where there is strong and sustainable tenant demand.”

The buoyancy of rents also reflects the strength of demand for a finite number of rented homes, at a time when many potential homebuyers are delaying property purchase given the cloudy outlook for house prices and interest rates. There continues to be strong growth in demand for rented accommodation from immigrants to the UK, with the Government’s recent announcement that 300,000 more foreign migrants have arrived in this country than had previously been announced.

Heron adds: “Whilst we may be entering a period of slower homebuying activity, the underlying demand for homes continues to grow as the UK population swells, new households are formed and the population gets older. That translates into buoyant tenant demand for a limited supply of rented homes.

“There is a combination of factors at work. People choose to wait before they purchase and stay in rented accommodation for longer. Inward migrants create extra demand for rented homes. With 1.2 million foreign migrants having settled in this country since 1997, we estimate that several hundred thousand new renting households have been created in just ten years - that’s a lot of extra demand. Landlords continue to invest, which explains why buy-to-let lending has held up well according to latest reports from the CML.”