Landlords reveal continuing confidence in the buy-to-let market, indicates Paragon Mortgages’ latest buy-to-let trends survey of UK landlords, and are continuing to grow their portfolios in an environment of strong tenant demand for rented accommodation.

Portfolio growth

The average portfolio size in June 2003 has risen slightly to 10.6 properties, up from 10.5 in March and from 9.0 properties at the end of last year. On average landlords are planning to increase the number of properties in their portfolios by 8.6% over the next 12 months, to an average of 11.5 properties – meaning that the typical landlord expects to acquire one more property over the next year.

Landlords are positive about the prospects of their own business going forward. This is particularly the case for landlords having a larger number of properties, 36% of whom describe their business as ‘growing’ or ‘booming’ (compared with 28% generally). Over 67% of landlords believe their buy-to-let business is stable and only 5% believe their business to be declining.

Values rising

Average landlord property portfolio values continue to rise, up by 6.1% from £686,000 three months ago to £728,100 now. On average landlords expect their existing portfolio to grow by 5.8% over the next 12 months, to more than £770,000.
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The higher level of optimism among landlords with larger portfolios is reflected in almost half of them having significant expansion plans over the next year, against only 17% of those owning only one or two properties.

Without the effect of property investments or divestments (i.e. based on price inflation alone), landlords are expecting their portfolio values to rise by 3.1% over the coming year.

While gross rental yields have slipped slightly from 8.5% to 7.9% (due mainly to property value rises), landlords are on average expecting them to now hold steady over the next 12 months at around 8%.

Landlords continue to be extremely attractive and safe borrowers, from a lender’s point of view. The average loan to value (LTV) ratio for a landlord is 41%, down from 43% three months ago. Around 93% of landlords have a LTV ratio of less than 75%, under 5% have an LTV of between 76%-90% and a tiny 0.5% an LTV of over 90%.

Voids slightly down

The average void period per property per year (period unoccupied between tenants) stands at 2.8 weeks, down slightly from 2.9 weeks in March. The average number of viewings before tenants accept has increased to 3.6 from 3.0 in March, but remains very low by historic standards. Landlords are still finding it relatively easy to find new tenants, and only 9% need to conduct more than 5 viewings to achieve a successful letting.

Almost all landlords with interests in commercial property expect their portfolios to grow or remain stable, with only 1.5% expecting a decline. On average, growth in commercial buy-to-let of 2.5% is expected over the next 12 months.

John Heron, Managing Director of Paragon Mortgages comments:

“The buy-to-let market is growing unabated and landlords are looking into the future with optimism. While property values are continuing to rise, yields are now stabilising and are expected to remain solid over the next 12 months.”

“Landlords are confidently planning to expand their portfolios, and the state of the residential buy-to-let market is perceived to be very healthy.”

“There is also a sustained confidence in commercial buy-to-let as an investment with landlords expecting to grow their portfolios over the next year. To respond to this demand, Paragon Mortgages has launched a commercial buy-to-let product which is already generating significant interest.”

Paragon Mortgages’ Property Investor Confidence (PICT) Index – based on growth in portfolios since May 2002 landlord growth expectations for the coming year – gives a figure of 119.2, up from 113.9 three months ago.