Rents growing faster than house prices

Increased demand for rented accommodation has caused rents to grow faster than house prices in the first half of 2007, according to Paragon Mortgages.

Paragon’s July buy-to-let index shows that average rents have risen 12.8% to £10,938 in the first six months of 2007. During the same period, property prices have risen just 10.5%, from £162,776 to £179,793, according to Paragon.

John Heron, managing director of Paragon, says: Rising borrowing costs deter many people from committing to buy a home, as they defer their property purchase decisions until the interest rate outlook becomes clearer. Instead, many will choose to rent from a private landlord, leading to a further expansion in tenant demand for rented properties.”

The Paragon index also found that rental yields have remained stable at around 6% during the past year, generating an attractive return for investors.

However, Paragon also warn investors to remain cautious and make prudent decisions when expanding their portfolios.

This is not the time for speculative investment in off-plan new-build schemes, or indeed for advisers to recommend self-cert mortgage products with no rental cover, without being fully satisfied that the customer has other sources of income” says Heron.