Average rental yields positive at 6.4%

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by Gill Montia

Tenant demand is continuing to push up yields in the private rented sector.

According to research from Paragon Mortgages based on a survey of experienced landlords, average yields rose to 6.4% in the second quarter of 2009, up from 6.2% in the first quarter.

The latest shift signals two consecutive quarters of growth and follows a lengthy period of stagnation.

In addition, 30% of respondents predicted that tenant demand will continue to increase over the next 12 months, while 50% expected demand to stablise.

Paragon Mortgages’ managing director, John Heron, comments: “A lack of available mortgage finance makes it difficult for potential homeowners to purchase property and many people remain unwilling to commit to purchasing a home in the current house price environment.”

The study also suggests that the market is being bolstered by strong demand from stalwarts of the private rented sector, such as students, migrant workers and young, mobile professionals.

Mr Heron therefore believes that strong yield levels will continue to attract buy-to-let investors, particularly as interest rates for savers remain low and the stock market remains volatile.

Paragon’s findings sit alongside latest figures from the Royal Institution of Chartered Surveyors, which last month reported that growth in demand for rental property slowed in the three months to April, as did new landlord instructions.

Furthermore, during the first quarter of 2009, 55% more surveyors reported a fall in rents than a rise, the most negative reading since the survey began in 1999.

The study also revealed that rents continued to decline but rental expectations suggested the trend is set to ease.