As expectations change in the buy-to-let sector, capital appreciation is no longer the main spur to buying a buy-to-let property. It is now rental return that carries the most weight, according to Paragon Mortgages’ quarterly Property Investor Confidence Tracking Index (PICT).
Gross rental returns on buy-to-let properties have fallen from 9.6% to 8.9% over the last quarter, yet expectations of higher rents are growing. Over 70% of investor landlords cited it as a dominant factor, against 69.6% three months ago. The change comes at the expense of those claiming to look primarily for capital growth. Second in the league of factors governing buy-to-let decisions is the mortgage interest rate. Over 50% cited it as a factor, against 49.8% three months ago.
John Heron, managing director of Paragon Mortgages said: ‘We appear to be seeing an appreciation of the traditional contra-cyclical nature of buy-to-let investments, 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.’
The average size of a portfolio is down 0.9 to 9 properties, but landlords expect to increase their holdings by 16% over the next 12 months, although values are expected to rise by only 8.1%. Paragon surmised this indicates that landlords either expect house price adjustments or are intending to restructure their portfolios to include cheaper properties.