Growing proportion of landlords planning to purchase

A growing proportion of landlords are planning to purchase residential property for investment purposes, Paragon Mortgages' PRS Trends Report reveals. The quarterly snapshot of the private rented sector and buy-to-let market shows that 12% of landlords are planning to purchase in the second quarter of 2010, compared to 10% who said they would buy in the first quarter of the year.

Of those planning to purchase, terraced housing is the preferred option, with just over two thirds of landlords (67%) intending to purchase this type of property, followed by semi-detached housing (25%).

Nigel Terrington, Paragon Group chief executive, says: ‘Demand for property investment has remained strong during the recession and has improved since house prices stabilised. Landlords know that the long-term forecast for tenant demand is extremely healthy, with socio-economic and demographic changes leading to growth in the number of households calling the private rented sector home.

‘Government figures show that the private rented sector is the only housing tenure that is currently growing. The proportion of households in both owner-occupation and social housing was in decline for the best part of the previous decade, and the private rented sector has picked up the slack. One in seven households now lives in privately rented accommodation.'

The Q1 2010 PRS Trends Report, which covers the three months to March 31, also shows:

Tenant demand remains strong, with 24% of landlords stating that demand grew during the quarter, compared to 8% who said it was declining. The proportion of landlords stating that tenant demand was declining was lower than the previous quarter, when 13% of landlords said tenant demand was falling

Looking forward, landlords expect tenant demand to strengthen considerably, with nearly four out of 10 landlords (36%) forecasting demand for their property to be higher in 12 months' time

The average portfolio value increased for the second quarter in succession, rising by 6.1% during the period to £1.52 million. This figure takes into account both property values and sales and acquisitions, so it could be a sign of landlords adding to their portfolios, as well as firmer house prices

Landlords expect the average value of their portfolios to be 1.2% higher in twelve months' time

Access to mortgage finance remains an issue. Of those who attempted to secure mortgage finance for purchase or remortgage purposes, 82% said it was more difficult compared to the previous quarter, with 7% stating that it was easier

Yields were 6% during the period. Yields, a portfolio's annual rental income as a percentage of its total value, had been rising since the first quarter of 2008. However, for the past three quarters the figure has bounced between 6% and 6.2%

Nigel Terrington adds: ‘Landlords are in a strong position. They are enjoying unprecedented levels of tenant demand, and structural changes taking place in the UK will create further demand. As the Royal Institution of Chartered Surveyors recently highlighted, this is leading to higher rental income.

‘Whilst this is positive for existing landlords, it emphasises the vital need to expand PRS supply. Supply is being inhibited by a lack of available mortgage finance and there is a danger that households could eventually be priced out of the sector.'