Buy-to-let rental yields remained firm at just under 8%, despite rises in property values of 2.10% last month, according to the June 2003 buy-to-let index from Paragon Mortgages, the UK’s leading specialist buy-to-let lender. Rental yields were supported by a strong rise in rental income, of 2.15%.

In May 2003, rental yields in England and Wales were up slightly at 7.98% (April 2003: 7.97%), and rental incomes rose from £8,742 to £8,930 (+2.15%) and property values from £109,669 to £111,972 (+2.10%).

John Heron, managing director of Paragon Mortgages, comments:

“Buy-to-let is looking steady as tenant demand builds and landlords continue to invest. This is good news for landlords, but also for the large number of prospective tenants who will benefit from more choice and quality in rented accommodation.”

“The rental market is awash with people in their twenties and thirties who are delaying their first home purchase and going the rental route – a view that the RICS confirmed in their latest Residential Lettings Survey. Canny landlords are providing more supply to meet this demand.”

As previously, highest yields are achievable in regions where properties are cheapest and the lowest yields in regions where properties are most expensive. This month there is some evidence that the gap is widening, with cheaper areas seeing rising yields and more expensive ones falling.

Terraced properties

Terraced properties remain the best investment with the highest annual rental yields (9.36%) and indeed this figure has increased over the month from May’s figure of 9.25%, helped by an increase in rental income from £7,401 to £7,426 and a fall in cost from £80,016 to £79,326. Semi detached houses are the next best property by type of house for yields (8.38%), almost unchanged over the previous month.

Detached houses

This month detached houses saw a significant improvement in yield, up from 7.70% to 8.25%, despite a 3.5% increase in value (which rose from £142,396 to £147,390).

Flats

Flats continued to give the lowest yields (7.41%), slightly down on April’s 7.48%.

Regions

In terms of total overall return (taking into account both property value appreciation and rental income over the year), the East Midlands provides the highest overall return (59.55%), followed by the East Anglia (51.38%).

Yorkshire provided the lowest total returns of 9.73%, followed by the North (14.74%). Nationally, the average total return was 27.37% (on a typical property bought a year ago), equivalent to £25,896 – marginally down on the previous month’s 28.70% and £26,366. In contrast, a FTSE100 tracker investment has yielded a 17% decline over the year.

The Paragon Mortgages Buy-to-Let Index is the only statistical indicator of the buy-to-let market in England and Wales, and is compiled monthly from data on the company’s own mortgage book. The June report is based on mortgage lending up to 30th May.