Buy-to-let returns stabilise

The UK buy-to-let market is returning to stability, despite the ongoing turmoil in the wider marker, according to specialist lender Paragon.

Research from the mortgage lender released today illustrates rental yields remained stable at 6.4 per cent during June – the same figure as recorded for May.

Regions achieving the highest yields in June were Wales (7.6 per cent), the north-east (7.4 per cent) and the north-west (7.3 per cent).

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

The downturn in the average price of property – with Halifax and Hometrack reporting large annual falls – is discouraging buyers from entering the property market.

As such they are remaining in rented accommodation, pushing up demand and forcing rental prices to rise.

"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," said John Heron, managing director of Paragon Mortgages.

"Falling prices are spooking first-time buyers and they are delaying house purchase, with tenant demand at high levels as a result."

Over the coming months, the buy-to-let market will be a vital source of stability in an uncertain housing market, argues Paragon. Returns remain attractive and strong tenant demand encourages landlords to retain property, while also looking for opportunistic purchases.

The average portfolio gearing is less than 40 per cent according to the research - giving landlords plenty of room to free up equity for further investment.

"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," added Mr Heron.

"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."

Chris O'Toole