Landlord's returns steady as rents reach record high

This figure has been reached two months in a row, having declined in the first quarter of 2005 in line with the general easing in house prices. This return comprises a total of £29,083, made up of £19,480 in capital appreciation plus £9,603 in rental income, on a property worth £137,849 at purchase one year ago.

In terms of regions, Yorkshire, which had generated the highest total return every month since the beginning of the year, slipped into second place this month. The North West is now in top position, with total returns of 48.2 per cent, followed by Yorkshire in second place with returns of 38.4 per cent. The East Midlands, the North and Greater London all registered total returns above the national average.

John Heron, managing director of Paragon Mortgages, commented: “Total annual returns generated by landlords are still healthy, with northern and western parts of the country doing particularly well. Star performers among the regions this month are the the North West and Yorkshire, where landlords have seen returns close to 40 per cent or more on their investments.”

Across the country, average rental incomes rose slightly this month (up 0.03 per cent), on top of a 1.67 per cent rise in May, bringing rents to their highest ever level. They now stand 9.7 per cent higher than they were one year ago, when the average rental income was just £9,603.

Six out of ten regions saw rental incomes rise this month. Wales experienced the largest rise in rental incomes, reaching an average of £8,442. The West Midlands also witnessed a large increase in rental incomes, to reach an average of £9,091. Smaller increases were seen in the South West, the North West, Greater London and the North.

Continues John Heron: “While landlord yields have eased a little since the beginning of the year due to the decline in property values, rental incomes have continued to rise steadily and are up an impressive 9.7 per cent over the past 12 months. That’s well over three times the rate of retail price inflation, which according to latest ONS figures was 2.9 per cent in June.”

Prices paid by landlords rise more slowly than in 2004

Property values increased very slightly this month, rising by 0.3 per cent to £157,330. Values have been rising much more slowly in 2005 than they were last year, annual inflation having reached almost 24 per cent by the beginning of this year. Since January, prices paid by landlords have increased by just 1.7 per cent suggesting that, at this rate of inflation, prices could rise by less than 4 per cent over the full year. Increases this month were seen in the North, the North West, the West Midlands, Greater London and the South West.

With the very small rise in property values this month, yields remained virtually stable at 6.7 per cent. Across the regions yields rose in Wales and the West Midlands to 7.4 per cent, Yorkshire to 7.3 per cent, East Anglia to 7.1per cent, and the South West to 6.8 per cent.

Terraced houses continue consistently to provide the highest yield to landlords, at an average of 7.3 per cent nationally. This compares with 6.3 per cent for detached, 6.8 per cent for semi-detached and 5.9 per cent for flats.

In terms of rents, detached properties experienced the highest rise in rental incomes this month, of 4.3 per cent, to reach £15,282. Semi-detached and terraced properties also saw rental incomes increase by 4.1per cent and 0.6 per cent respectively, to reach £12,193 and £10,306.

Average property values for detached properties stood at £241,563 in June. Semi-detached properties are the second most expensive form of investment at £179,294. Property values for flats currently average £141,208 and terraced properties £140,292.

In conclusion, John Heron observes: “Landlords’ overall returns seem to have stabilised at something over 20 per cent annually, a very respectable return when compared with other forms of investment, such as the stock market, bonds or a bank or building society deposit. Of course, to achieve healthy returns such as these landlords need to treat residential property investment as a long term business, purchasing properties only in response to identified tenant demand and managing their portfolios in a serious, professional fashion. For landlords who adopt the right approach, there’s a more than decent return to be made.”