To ward off rising interest rates and less favourable borrowing costs, the average landlord has cut their gearing down by 10 per cent over the last five years – from 48 per cent in 2002 to 38 per cent in 2007.
The level of gearing for landlords with three or fewer properties is even lower at just 25 per cent, quashing suggestions that these small-scale landlords will bail out of the buy-to-let market if rental yields contract.
As interest rates have gradually risen over the past five years – from 4 per cent in 2002, to 5.75 per cent now – landlords have ensured that their returns after financing remain high by lowering the ratio of debt to equity across their investments.
Nigel Terrington, chief executive, said: “Doom mongers simply look at a 6 per cent yield and a typical mortgage repayment rate of just over 6 per cent, then assume that landlords are making a loss after financing.
“Even for those with a higher portfolio gearing this is not the case. Landlords do not have 100 per cent debt, in fact their average debt is just 38 per cent of their portfolio value and their effective yield, even after financing, remains very attractive. In the main, landlords are shrewd investors and business people who handle their assets with skill.”
