Paragon Mortgages’ January buy-to-let index reveals a new year pick-up across the board, with rising rental incomes, property values and rental yields.

In England and Wales average rental incomes rose by 1.22% over the month from £10,363 in December to £10,489 in January - a higher percentage than the growth in property values, which were up 0.68% this month.

Over the last three months rental incomes have increased by 3.33%.

The rise in rents served to improve rental yields achieved by landlords, which rose from 6.42% in December to 6.45% in January. John Heron, managing director of Paragon Mortgages, said: "With demand for rented accommodation from tenants steady or growing in many areas, landlords have been able to achieve higher rental yields, notwithstanding the continued rises in property values we’ve been seeing recently."

After an increase of 4.49% in December, this month’s rise of 0.68% takes average property prices paid by landlords to £162,609 – up by 3.65% over the past quarter, from October’s figure of £156,879.

Mr Heron explained: "After a lull in prices towards the end of 2005, the housing market has gathered momentum since the beginning of this year, and prices for all types of property are rising more strongly in most parts of the country."

"The sustained buying activity and the higher prices that go with it reflect landlords renewed confidence in the private rented sector. Indeed, recent data from the Council of Mortgage Lenders showed that gross mortgage lending reached a record high in January 2006. "

Over the past two years, the general trend in rents has been resoundingly upwards. The fact that growing numbers of professional investors are willing to pay higher prices for properties demonstrates that landlords are confident that current levels of demand are sustainable and indeed are set to increase.

Across the regions, 6 out of ten experienced increases in yield during January. Wales saw the strongest monthly increase from 6.90% to 7.75%, while smaller rises were seen in the West Midlands (up from 6.90% to 7.58%) the South West (up from 6.41% to 6.55%), the North (up from 6.62% to 6.76%) the North West (up from 6.35% to 6.38%) and the South East (up from 6.32% to 6.34%). Greater London was unchanged at 6.05%.

Seven out of ten regions experienced increases in property values this month. Greater London saw the largest rises, of 5.14%, as prices reached an average of £290,297. Over the year property values in Greater London have risen by 9.88% from £264,186 in January 2005. Due to higher average property prices Greater London is consistently one of the lower yielding regions in the UK.

Other areas experiencing increases in property values were the East Midlands (to £144,666), the West Midlands (£135,248), the South East (£164,728), Wales (£131,710), Yorkshire (£135,658) and the South West (£182,077).

Rents increased in 7 out of 10 regions – mirroring property values. Wales and the West Midlands experienced the largest increases, to reach £10,214 and £10,254 respectively. Greater London and the South West saw increases of 5.10% and 2.59%, bringing their respective rental incomes to £17,555 and £11,935. In the South East rents were up 1.79% to £10,441. Smaller percentage rises were seen in the East Midlands (0.43%) and the North West (0.19%).