Terraced houses consistently the top pick for buy-to-let investors

This month shows terraced properties yielding 8.62%, slightly down from last month’s 8.71%, but still consistently ahead of all other property types – semi-detached came in second at a respectable 7.82%, while detached and flats lagged behind at 7.36% and 6.65% respectively.

John Heron, managing director of Paragon Mortgages, says: “The savvy landlord knows his local area and his market place intimately, and that means understanding exactly what tenants are looking for. In many cases, it’s the modest terraced home that suits them best, offering a good quality, decent home at a reasonable price.”

This month’s Index shows house prices up 0.6% over the previous three months. Investor house prices, at £125,619, are 12.9% up on the beginning of the year and 17.5% up since November 2002, a significantly larger rise than recorded by either Nationwide (15.2%) or Halifax (14.1%).

John Heron says: “Prices paid by landlords have been rising more rapidly than house price inflation in the mainstream housing market, but the average investor still tends to buy properties at below average prices – which is where tenant demand is strongest and returns the best. Our average price is £125,619, compared with Halifax’s £139,405 and Nationwide’s £133,388.

However, all indicators show the housing market cooling, with steady falls in annual house price inflation, which is good news for owner-occupiers and investors alike.”

Average yields slipped slightly in November to 7.49%, an effect of an easing of rents that, at £9,412, have returned to their level in August 2003. Yields on residential property investment are nevertheless still highly attractive relative to other assets such as a building society account or the stock market.

Regionally, yields rose in the East Midlands and South West, and were stable in the South East, while other regions saw an easing of landlord yields.

As previously, the highest yields are generated in northern regions where property prices are lowest, although yields have declined in these parts of the country during the year. The lowest yielding regions in the country are in more expensive areas in the south, in particular Greater London and East Anglia.

Total returns on buy-to-let over the past 12 months have been very healthy, with landlords who purchased a property at this time last year generating an average total return of 25.6% (taking into account rental income plus capital appreciation over the year).

John Heron continues: “Landlords have been enjoying a good year in 2003, with sustained tenant demand, solid yields and strong house price appreciation. There are not many forms of investment that have generated average returns of over 25%, and in some parts of the country as much as 40%.”