Paragon Mortgages’ January 2005 buy-to-let index shows landlords earning total annual returns of over 31% in the year ended 31st December 2004, realising a return of £38,560 on an average property bought 12 months ago at £123,372.

This compares with total annual returns of 20% or £22,137 in December 2003.

John Heron, managing director of Paragon Mortgages, commented, “Landlords had a very good year in 2004 with their overall returns outstripping most other forms of investment. The average total return is over 31%, while in some regions it is significantly higher: 57% in Wales, 51% in the North and 44% in Yorkshire and the East Midlands.”

Property values nationally decreased by 0.30% during December 2004 to £152,834 but rental property prices remain at 23.88% higher than a year ago. Wales saw the greatest increase in property values over the year at 48.19%, closely followed by the North at 42.23%.

Over the past twelve months average landlord rental incomes have increased by 13.17% from £9,098 in December 2003 to £10,297 in December 2004. Rents increased in six out of ten regions with Wales and the North experiencing the highest increases at 7.88% and 7.33% respectively. East Anglia increased by 5.43%, Greater London by 4.24%, the South East by 2.32% and Yorkshire by 0.13%.

John Heron continued, “Landlord rental incomes have generally risen strongly over the year. 2004 saw the highest figure ever recorded in the Paragon buy-to-let index at over £10,000. Uncertainty in the owner occupier market has helped strengthen tenant demand as prospective buyers, many of whom are would-be first-time-buyers, are unable or unwilling to make the initial leap onto the housing ladder.”

This month’s Index shows house prices paid by landlords slipping slightly from the peak seen in November, to £152,834, as landlords took advantage of a slower property market in the run-up to Christmas to purchase properties at more attractive prices. House price inflation on properties purchased by landlords has now firmly overtaken the rate of increase in the housing market generally. Paragon Mortgages data shows property values were 23.88% higher at the end of 2004 than in December 2003.

John Heron said, “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.”

Average yields ended the year at 6.74%, having stabilised over the past two months following a slight dip in 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.

For the third month in a row, the highest yield was achieved in the South West: 7.59% on an average property worth £178,446. The lowest yielding regions in the country continue to be in more expensive areas in the south, in particular Greater London and East Anglia.

“It’s been a good year for landlords – and prospects for 2005 are also good, continued Mr Heron. "The slowdown in the housing market since last summer has fed through into a lower level of activity among speculators and small-scale investors, but larger landlords remain opportunistic buyers, albeit cautious ones. Our recent landlord survey indicates that landlords predict another year of growth, driven by sustained demand, and expect their portfolios to increase by 5% over the next 12 months.”