Buy-to-let investors see returns rise

The buy-to-let market is continuing to climb with rents, yields, and property values all rising in February.

That is according to new data from Paragon Mortgages’ Buy-to-Let Index, which tracks the rental market in the UK.

And the good news does not stop there.

"Increasing yields, rents and property values are only part of the positive story surrounding the buy-to-let market," said John Heron, managing director of the specialist lender.

"The beginning of 2005 was relatively slow, but activity picked up in the second half of last year and 2006 has seen momentum gather and investor confidence grow."

Paragon's figures show that in the three months to March, average rents rose 6.39 per cent to £10,590 while the average price of a rental property rose almost £9,000 to £163,417 over the same period.

These increases saw average yields in England and Wales edge up to 6.48 per cent.

Paragon highlights increased tenant demand as a key factor in rising rental income, which saw yields increase in turn

"The number of households in the UK is growing steadily," explained Mr Heron.

"Many of these new households will not be able afford to buy their own home and will be reliant on rented accommodation. This reliance is likely to increase as house prices continue to rise, and buyers (particularly first-time buyers) find it harder to get on the property ladder.

"This will ultimately lead to an increase in the demand for rented accommodation which is good news for the buy-to-let market."

Regionally, the east Midlands saw the biggest increase in yields, with property values rising fastest in the south-east.

Rents rose in seven out of ten regions, with the largest increase in the east Midlands as average rental income rose to £9,545 a year.

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