Paragon’s BTL index shows 14% rise in rental income

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by Lin Freestone

Paragon’s latest buy-to-let index shows that average rental income has risen by nearly 14% over the last year.

Figures just released for April 2008 indicate that rents continued to rise during the month as tenant demand for private rented properties grew.

Terraced houses continue to generate the highest yields, followed by detached, semi-detached, and flats.

The index shows that the average property purchased 12 months ago has generated an overall return of 17.4%, when both capital gain and rental income are taken into account.

The average age of a tenant is now 32 years and eight months. At the beginning of 2007, the average age of a tenant was 31 years.

Potential first time buyers in their thirties and forties still cannot afford to get on the property ladder and are having to rent instead.

The managing director of Paragon Mortgages, which introduced its first buy-to-let mortgage in 1995 and since then has increasingly specialised in the private rented sector, is well aware that the tenure of the UK is changing as a growing and more diverse demographic are choosing private rented homes.

According to Paragon, the percentage of households living in private rented accommodation rose from 10% in 2002, to 12% in 2007.

It warns that, if the situation in the housing market does not improve for first time buyers, demand for private rented homes will hit levels not seen for many years.

The company expects landlords’ yields to rise above their current level of 6.3% if tenant demand continues to grow, and expects to see further expansion of the private rented sector over the next two years.