Landlords' average total returns rise to over 25 per cent p.a.

The improvement in the average comes on the back of significantly higher returns in a number of regions, including the North (up from 59.5% to 72.4%), the West Midlands (up from 25.4% to 43.4%), the East Midlands (up from 33.0% to 34.3%) and the North West (up from 19.2% to 27.2%), which more than offset declines in some other regions.

The return comprises a total of £30,128 (up from £29,080 last month), comprising £21,073 (£19,948 last month) in capital appreciation plus £9,055 (£9,133 last month) in rental income, on a property worth £119,587 (£117,902) at purchase.

“After a couple of months in which total returns slipped,” explains John Heron, managing director of Paragon Mortgages, “July saw a reversal of this trend, with an increase in property values across the majority of the country contributing to a modest pick-up in overall returns made by landlords over the past 12 months. Investors are now making on average more than £30,000 gross on their buy-to-let properties.”

Property values nationally firmed by 2.0%, to top £140,000 for the first time, with the average investment property now costing £140,660, the highest figure ever recorded in the Paragon Buy-to-Let Index.

Notwithstanding the rises in prices they pay, investors still purchase properties at lower prices than the national average. John Heron explains: “Greatest tenant demand is for more affordable properties, for occupation by people on benefit, students, key workers and young professionals. That means the typical investor tends to acquire houses and flats at the lower end of the price spectrum. The average landlord pays 13% less for a property, £140,660 as compared with £154,299 paid by the typical Halifax customer.”

Rental incomes were almost unchanged this month (down just £5), following a couple of months of significant falls. July saw rental incomes at £9,598, compared with June’s figure of £9,603. Even so, rents are 6.0% higher than they were one year ago, when the average rental income was just £9,055 on a property worth £119,587.

Continues John Heron: “While rents have eased a little since their peaks during the busy springtime period, they are nonetheless up an impressive 6% over the past 12 months. That’s well over twice the rate of retail price inflation over that time.”

As a result of bigger rises in property values than have been seen over the past couple of months, yields slipped a little this month. On average, landlords are achieving a yield of 6.8% gross from their investment properties.

All but two regions of the country saw an increase in property values. In the West Midlands, prices rose by over £7,100 (6.1%) to £123,813, in Yorkshire & Humberside they rose by over £5,500 (5.6%) to £103,651, while in Greater London they were up by more than £5,200 (2.4%) to £225,370. Other significant rises occurred in the North West (up almost £5,000 to £93,312), Wales (up almost £4,700 to £113,971) and the North (up over £2,100 or 2.7% to £79,285). Small increases of less than £1,000 were seen in the South East and South West, while modest falls were registered in East Anglia and the East Midlands.

Rental incomes rose in six regions, with the North West up 4.6%, Yorkshire & Humberside up 4.3% and the East Midlands up 2.0%. The two regions with the largest increases in rents were also among those with big rises in property values.

As before, the North is the region offering landlords the highest yield, at 7.70%, while Yorkshire & Humberside is in second place at 7.41%. The West Midlands and North West provide similar yields, of 7.27% and 7.23% respectively. Generally, there is an inverse correlation between yield and property value, i.e. the cheapest properties offer the best percentage yield. Conversely, in London and the South East, where properties values are higher, yields are lower.