Buy-to-let investment returns to rise as tenant demand continues

Buy-to-let investment returns to rise as tenant demand continues

Ongoing demand for rental accommodation is set to ensure that property investment returns outperform other asset classes over the coming year.

Summary:

  • Demand for rented accommodation has increased recently
  • The majority of investors believe tenant demand will rise over the next year
  • Buy-to-let investments are offering record-high yields and providing much needed homes for a growing private rented sector

Buy-to-let investments will be the subject of more tenant demand in the coming year.

Investors remain optimistic that strong returns will continue, with 43% of landlords and investors telling Paragon Mortgages that they have seen a rise in the number of people looking to let their properties in the second quarter.

Furthermore, over half of the investors surveyed by the specialist finance provider expect tenant demand will continue to rise over the next 12 months.

The increases in tenant demand are primarily driven by large volumes of young people and families looking for suitable homes.

Managing Director of Paragon Mortgages John Heron explained the rise in tenant demand seems logical to investors.

He stated: “With continued stress on the housing stock driving prices up, tough affordability hurdles for would-be buyers and a social rented sector under pressure as a result of renewed interest in right-to-buy, a steady increase in rental demand was practically inevitable.

“It is important that landlords continue to expand the supply of rented property in order to maintain balance and so avoid unsustainable increases in rents.”

Rents, and therefore investor yields, have been rising steadily for some time, but many tenants prefer the flexibility that comes with not paying a mortgage or saving for a deposit. In providing much needed rental accommodation investors have generated returns much higher than those currently available from the stock market or savings accounts.

As such, the number of people looking to make a buy-to-let investor has increased significantly over the past few years, a trend that was expedited by the recent pension freedom changes.

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