Rents up again

Amid all the recent negative publicity about buy-to-let, one factor remains a constant theme: the rise in rental incomes for landlords.

The latest Paragon Mortgages buy-to-let index, covering trends in December 2007, showed that during the month rental incomes were up by 2.5 per cent, which equates to an annualised 19.4 per cent. In addition to this, the final quarter of the year showed that an 8.1 per cent rise had taken place, while overall annual rental yields were at 6.2 per cent, the highest since October 2006.

One factor, which has been frequently flagged up as a reason for rising rents in buy-to-let, is an increasing level of demand. This is partly caused by an increase in immigrant and student numbers but also by many would-be first-time buyers opting to stay off the housing ladder for the time being, in the hope that affordability and certainty about how the market is going would increase in the months ahead.

However, if affordability constraints are an element in helping raise rents, this does not necessarily tally with yields, as regional differences in the Paragon figures indicated. While the three highest average rental incomes per head are London (£20,949), the south-west (£14,691) and the south-east (£11,630), the highest yields in December were in the north at 7.1 per cent, followed by the north-west and Yorkshire and Humber regions (both seven per cent) where housing affordability is better. This is an indication that for investors the various costs involved in their operation mean that the headline figures for rents are not the whole story.

The fortunes of buy-to-let in the north have been the subject of major debate, since a number of regional cities have a high concentration of apartments and flats built in city centres in recent years. Some have argued that there is now an oversupply and the market is flat, while others are confident that such properties are still making for good investments.

Both views were represented this week in a report by the Bradford Telegraph and Argus on the decision of JM Construction to abandon a project to transform an old block of flats into new apartments. Managing director John Mulleady said the company had pulled out because the flats market in Bradford city centre had "died a death".

Yet others in the city's property industry take a very different view. Mani Waheed, managing director of Squarefoot Apartments, told the paper: "Apartment prices in Bradford city centre are not falling. The prices are steady and holding values. From an investor point of view the Bradford rents are moving up, so rent payments are covering mortgage payments."

Another to tell the paper things were in a sound position was Ashgar Ali of Smart Moves, who commented: "I would not say the market was buoyant, but it's still safe money in the sense that there's lots of growth potential in Bradford."

For buy-to-let investors in these cities, growth potential may be the key. While the generally strong performance of the UK economy in recent years has helped regeneration in many places, the prospects for each and every city in the future may not be the same.

One property developer, Allied London chief Michael Ingall, told the Manchester Evening news that the city region was one area where huge expansion would take place, with Manchester achieving its potential as a business city and the population surging as a result. Claiming that the area was "probably the only place in the country" with the requisite airport, infrastructure and brownfield sites to achieve such a thing, he predicted the population could double in the next 30 years and possibly even treble by 2050.

Whether such an expansion will occur remains to be seen, but if anything approaching that sort of change takes place, there will certainly be nobody arguing that too many new flats are being built.

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Jim Barnaby is a real estate investment broker and successful property investment adviser delivering research and selected UK and overseas property investment solutions with experience in spanish properties, french property investment, German property, Cyprus holiday homes, Property in Cape Verde, German property investment, cape verde property buy to let property