Rental incomes continue strong growth

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by Gill Montia

Paragon, the buy-to-let lender, has published its January index, showing a 2.5% rise in rental incomes during the month.

The increase brings the annual rate of rental growth to 19.4%, with tenants paying an average £965 per month for their properties, compared with £808 in January 2007.

According to the mortgage lender, 2007 was a positive year for established residential property investors.

Strong demand from tenants, together with a slight decrease in house price inflation, meant that in December gross yields rose to 6.2%, having maintained 6% for the previous five months.

During the year, total investment returns were substantially more (in both percentage and actual terms) than in either 2005 or 2006, with both rental income and capital appreciation rising to 21%.

John Heron, managing director of Paragon Mortgages, comments: “Rents have been rising at the fastest rate we have seen since the Buy-to-Let Index was first published in 2001, by 8% in the last quarter of 2007 and 19% over the year. With a cooling in the rate of increase of house prices, yields have also picked up this month and we expect that trend to continue throughout 2008.”

Paragon’s research also indicates that 90% of existing property investors plan to retain their portfolios in the long-term and 40% expect to acquire additional properties during 2008.