Paragon Mortgages’ January 2004 buy-to-let index shows landlords earning total returns of over 20% in the year ended 31st December 2003, realising a return of £22,137 on an average property bought 12 months ago at £110,120.

John Heron, managing director of Paragon Mortgages, comments: “Landlords had a very good year in 2003 with their overall returns outstripping most other forms of investment.”

“The average total return is over 20%, while in some regions it is significantly higher – 37% in the South West, 32% in the North West and 25% in the North and East Anglia.”

This month’s Index shows house prices paid by landlords slipping slightly from the peak seen in October, to £123,372, as landlords took advantage of a slower property market in the run-up to Christmas to purchase properties at more attractive prices. As a result, for the first time this year, house price inflation on buy-to-let properties has fallen behind that of the housing market as a whole.

Prices paid by investors for property, at £123,372, are 3.1% down on the peak figure of £127,329 reached in October but 12.03% up on a year ago. This contrasts with the Halifax and Nationwide figures of 15.4% and 15.6%.

John Heron says: “Landlords tend to be astute property purchasers and they take advantage of any dips in prices to achieve a good deal and make shrewd investments. As a result, we’re starting to see a lower rate of inflation on landlord property values than in the market as a whole.”

Average yields ended the year at 7.37%, slipping slightly for the past couple of months, following several months’ stability over the late summer and early autumn. Over the year, there has been a gradual easing of yields, although buy-to-let still offers rather better yields than most other forms of investment.

This month, the highest yield was achieved in the North: 9.10% on an average property worth £57,087. This region has taken over from the North West as the region offering the highest yield.

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

John Heron continues: “It’s been a good year for landlords – and prospects for 2004 are good as well. They expect an 8.8% increase in their property portfolios by the end of this year, driven by sustained tenant demand.”