The June edition of the Paragon Mortgages buy-to-let index shows a significant rise in the prices landlords have been paying for their residential investments, as property values increased by 2.8% or £4,265 over the month.

Average property values are now £156,887, compared with £137,112 in May 2004, representing a 14.4% increase over the past 12 months.

This rise is attributable in particular to an increase in activity among large-scale landlords acquiring additional student lets in advance of the new academic year starting in September.

John Heron, managing director of Paragon Mortgages, said: "We’ve seen landlords buying properties in several of the UK’s university towns, particularly in the northern half of the country. To meet the needs of student sharers, landlords typically buy larger properties with four or more bedrooms which, of course, tend to be more expensive than medium sized properties for occupation by families."

"This growth in buying activity among landlords specialising in the student market accounts for the significant rise in average property values recorded this month."

"A significant number of landlords concentrate on the student market, with many university towns and cities experiencing a shortage of decent accommodation for students. With four or five student sharers in a property, the return to the landlord can often be very attractive."

Investors located in the northern regions of the country continue to benefit from higher average total returns than those in southern parts. In Yorkshire, average returns are 56.2%, while in the North West they are 44.6%. The North and Wales have overtaken the East Midlands this month with overall returns of 33.0% and 28.2% respectively.

As well as seeing high levels of capital appreciation, eight out of ten regions saw rental incomes rise this month. The West Midlands and the North experienced the largest increases in rental incomes, reaching averages of £8,067 and £5,981 respectively. Despite this month’s increase, however, rental incomes in the North are still the lowest in the country. Across the country, average rental incomes are currently £10,534, representing an increase of 6.8% over the past year.

John Heron continues: "Over the past twelve months, rental incomes across the country have risen fairly consistently from £9,867 in May 2004 to exceed £10,500 this month. Landlords in the North West and Yorkshire have seen rental incomes rise by over 35% through the year."

As a result of the rise in property values, yields eased slightly to 6.7%. Even so, yields rose in five out of ten regions, with the biggest increase in the South West, followed by the West Midlands, East Anglia, the South East and Yorkshire. Three regions (the East Midlands, the North West and Yorkshire) continue to register yields of over 7%.

In terms of property type, terraced continue to provide the highest yield to landlords, at an average of 7.3% nationally. This compares with 6.3% for detached, 6.7% for semi-detached and 6.2% for flats. Rental incomes rose in three out of four property types with the largest increase for terraced properties. Rental incomes for this type of property now average £10,240.

John Heron comments: "The increase in rental incomes this month reflects strong tenant demand in most areas for the right type of property, which tends to be the modest home targeted at young professionals, key workers – and, of course, students. While unusually high seasonal activity among certain types of landlord, in particular those specialising in the student market, has pushed up average prices paid by landlords this month, buy-to-let investors continue to negotiate good deals on properties in an uncertain owner-occupier market."