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Rent rises boost buy-to-let returns

Total returns for buy-to-let investors trebled to 21 per cent last year, says Paragon.

The BTL lender’s January index shows that rental incomes rose by 2.5 per cent in December, bringing the annualised rate of growth to 19.4 per cent.

Tenants are paying on average £965 a month for rented properties compared with £808 a year ago. Paragon says despite a slight cooling in the rate of house price increases, the buoyancy of rents led to an increase in yields at the year-end. After being steady at 6 per cent for the last five months, December saw gross yields rise to 6.2 per cent.

The firm believes that prospects for this year remain strong as landlords continue to expand portfolios in response to tenant demand.

Managing director John Heron says: “There has been a fall in consumer confidence in recent months but this appears to be to the benefit of established landlords. In fact, 2007 proved a strong year for landlords who generated very healthy returns averaging over 21 per cent – three times the level of the previous year. Rents have been rising at the fastest rate since the buy-to-let index was published in 2001, by 8 per cent in the last quarter of 2007 and 19 per cent over the year.”

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