Beat low savings rates by investing in property

With savers receiving dismal returns from banks and building societies, a growing number of people are, unsurprisingly, turning to property as a means of supplementing their income.

While most saving rate accounts are currently offering well under 3% interest on your money, a recent PRS Trends Survey, commissioned by specialist buy-to-let mortgage lender Paragon Mortgages, found that UK landlords are achieving an average rental return of well in excess of 6%.

The research revealed that landlords achieved an average rental yield of 6.5% in the second quarter (Q2) of this year, up from 6.2% in the previous quarter (Q1), with professional landlords achieving a higher average rental return of 6.9% - an increase on 6.5% in Q1.

Yet with property prices broadly flat and strong tenant demand continuing to place upward pressure on rental values, some experts expect yields to increase even further.

Expanding buy-to-let market

Jones Lang LaSalle's (JLL) latest research on homeownership and the housing market shows that the Private Rented Sector in the UK has increased by 47.9% over last five years and is likely to grow further in the short to medium term.

Since 2006, the number of households renting privately increased by 47.9%, or 8.2% per annum. If this rate of growth continues, it will mean some 1.7million additional privately rented homes will be required by 2016 equating to an annual investment of circa £285billion - over eight times the size of the current buy-to-let market.

Rental values

The latest LSL Buy-to-Let Index shows that rents reached an all-time high of £734 per calendar month in England & Wales in July, with further growth anticipated.

A recent landlord sentiment survey conducted by LSL Property Services plc shows that four in ten landlords expect to see a further increase in rental values over the next year, with just one in a hundred investors expecting rents to fall.

Furthermore, 48% of landlords believe that now is a good time to invest in property, while less than 1% think it is now a good time to reduce their portfolios.

Landlords adding to property portfolios

With rents rising rapidly, many landlords are falling over themselves to add to their property portfolios, reflected by the fact that buy-to-let re-mortgage applications reached a two-year high in August, according to the figures published by haart.

Most landlords (62.1%) opted for fixed rate mortgages in August, while the number choosing discounted or tracker rates fell by 10% to 37.9%.

Until the banks ease stringent mortgage lending restrictions, many aspiring homeowners will not be able to afford to buy a home forcing them to live in rental accommodation instead, adding to existing demand for rental housing and placing even greater pressure the government to help housebuilders increase the supply of new homes to rent.

by Marc Da Silva