Rental yields hit 6.4%

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by Gill Montia

Buy-to-let lender, Paragon, has reported that average rental yields rose to 6.4% in May, their highest level since February 2006.

The increase reflects the fact that average rental income has risen 12% over the past year and close to 6% in the past six months.

The downturn in the UK housing market has created strong tenant demand as potential first-time buyers opt to sit out the credit crisis or simply cannot afford the high deposits and interest rates in today’s mortgage market.

Their numbers are swelled by those who have sold their homes and are opting to live in rented accommodation until house prices have bottomed out.

Paragon’s managing director, John Heron, believes that well managed rental property can now bring better returns than many other forms of investment.

In a survey of over 200 landlords, 74% said they would consider extending their portfolios as house prices drop.

The lender is confident that the private rented sector is set to grow across the country and points out that social housing is unable to meet short-term demand for homes.

Meanwhile, HM Revenue & Customs (HMRC) has reported that the number of house sales in the UK fell by 13% in May, compared with April, taking the number of transactions 37% down on May of 2007.

According to HMRC there were 504,000 sales above the new stamp duty notification limit of £40,000 in the first five months of 2008. In 2007, 743,000 sales were completed during the same period.

The figures are in line with data from the Council of Mortgage Lenders which recently reported that in April, house purchases accounted for 30% of the mortgage market, down from 44% a year earlier.