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Landlords relying on rentals rather than capital growth

Rental returns are now more important to buy-to-let investors than capital appreciation, according to a survey by Paragon Mortgages.

Its September survey of buy-to-let trends in the private rented sector shows expectations among landlords changing, with rental return the most important factor even though average returns have fallen to 8.9 per cent last quarter from 9.6 per cent in the first quarter.

In Q2, rental returns were the most dominant factor for 75 per cent of landlords compared with 69 per cent for the previous quarter.

Paragon believes the change in priorities reflects predictions of a cooling-off in the housing market.

The survey also reveals a fall in investor confidence in buy to let, with the property investor confidence tracking index showing a fall to 104.4 in the second quarter of this year from 108.8 in the first quarter. This time last year, the confidence index stood at 112.1.

The average size of property portfolios was down from 9.9 to nine properties although investing landlords said they intend to increase their holdings by 16 per cent over the next 12 months.

The survey questioned more than 200 buy-to-let investors in July.

Managing director John Heron says: “We appear to be seeing an appreciation of the traditional contra-cyclical nature of buy-to-let investment and the rental market in general. Investor landlords operating in the market are sensing a change from a period of high capital appreciation to a cycle of strong rental demand.”

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