Buy-to-let buyers buoyed by strengthening yields

Landlords experienced strengthening yields in the first quarter of 2009, which is helping to prompt many to look to acquire residential investment property this year, according to the latest Paragon Mortgages' Private Rented Sector Trends report.

The average yield across landlords' portfolios rose in the first quarter to 6.2%, up from 6.1% in the last quarter of 2008. Yields have been rising steadily since February 2008, when they stood at 5.7%.

One in five landlords (20%) said they intended to purchase residential investment property in 2009, with a further 28% still undecided. Four out of five landlords who plan to purchase property said lower prices in the current market were a driver behind their decision. Nearly half (48%) said that strong yields also played a part in their purchasing decision, while 73% said that property represented better long-term returns than other asset classes.

In addition, tenant demand continues to flourish. Despite strong growth in tenant demand throughout 2008, nearly four times as many landlords expect tenant demand to grow (34%) over the next 12 months than expect it to fall (9%).

John Heron, Paragon Mortgages' managing director, says: ‘The investment case for residential investment property remains strong, particularly in an environment of low interest rates and turbulent equity markets.

‘The UK continues to experience a chronic shortage of housing and rising levels of tenant demand. Landlords are attracted to residential property investment because of the control they have over their investments and the strong returns they can achieve. Whilst other forms of investment can be volatile, buy-to-let continues to bring in consistently strong yields and over the long-term can reap excellent capital gains.'