Landlords taking action to protect their yields

Posted: 26 Sep 2007 10:46:18 GMT

Amateur landlords are unlikely to bail out of the market if rental yields fall.

Amateur landlords are unlikely to bail out of the market if rental yields fall.

That is according to Paragon, which points out that the average landlord is reducing the gearing on his or her portfolio.

Portfolio gearing is the proportion of borrowing to the level of equity in the portfolio and the firm says that this has dropped ten percentage points in the last 12 months.

It means that most landlords are taking action to ensure that their yields remain high in the face of rising interest rates.

"Doom mongers simply look at a six per cent yield and a typical mortgage repayment rate of just over six per cent, then assume that landlords are making a loss after financing," said Nigel Terrington, chief executive of Paragon.

"Even for those with a higher portfolio gearing this is not the case. Landlords do not have 100 per cent debt, in fact their average debt is just 38 per cent of their portfolio value and their effective yield, even after financing, remains very attractive.

"Our index has shown that rental yields have remained stable for over a year, but borrowing costs have risen substantially. In addition to increasing rents, landlords have lowered their portfolio gearing and consequently kept their net returns fairly stable too," he added.

It was claimed earlier in the week that many landlords would leave the market as costs continue to rise, causing a collapse of the housing market similar to that seen in the early 1990s.

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