The latest buy-to-let index from specialist lender Paragon Mortgages shows landlords beginning to pay more for their investment properties, after two months of declining property values as they took advantage of slower market conditions to buy properties at prices below those paid by owner-occupiers.

Despite the rise in prices, buying activity by landlords is holding steady at similar levels to the previous two months, reflecting landlords’ sustained confidence levels in the prospects for buy-to-let in 2004.

John Heron, managing director of Paragon Mortgages, comments: “After an excellent 2003, there has been no let-up in landlord activity in the New Year.”

“At the same time, owner-occupiers are coming back into the housing market with renewed confidence, so that landlords are having to compete for property rather more than over the previous two months. The fact that investor landlords continue to purchase demonstrates that they are very positive about prospects for the current year.”

“In our latest survey of landlords, they told us that they expected on average to grow their property portfolios by 8.8% in 2004 – the equivalent of one additional property for every landlord surveyed.”

This month’s Index shows house prices paid by landlords rising marginally, by 0.6%, from £123,372 to £124,128. Landlord property values are now 11.6% higher than 12 months ago, compared with the latest Halifax and Nationwide figures of 16.0% and 14.3% respectively.

John Heron says: “When the market is quiet, landlords will often be able to strike a better deal than the owner-occupier can, but now that home buyers are starting to come back into the market, prices are on the increase. However, the rise in prices paid by landlords since last month is smaller than for owner-occupiers – Halifax saw a 2.2% rise in prices in its most recent house price index. The average price paid by landlords is currently just over £124,000, almost 15% less than that paid by owner-occupiers (based on Halifax figures).”

Average yields slipped again slightly, to 7.24%, as a result of an increase in property values combined with an easing of rents received.

This month (as last month), the highest yield was achieved in the North: 8.96% on an average property worth £61,344.

The lowest yielding regions in the country continue to be in more expensive areas in the south, in particular Greater London and the South East.