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| WEDNESDAY 16TH MARCH 2005 |
 LONDON
LANDLORDS STILL SEE GOOD DEMAND
Paragon Mortgages’ first quarter 2005 Buy-to-Let Trends
survey shows landlords continuing to acquire additional properties,
with a rise in the average size in their portfolios for the
third consecutive quarter. The typical landlord replying to
the survey currently owns 13 properties, up from marginally
over 11 properties last May.
John Heron, managing director of Paragon Mortgages, explains: "The
reticence of many potential owner occupiers to commit in
the current market feeds through into stronger demand for
rented accommodation."
"At the same time, in this quieter market environment,
landlords have been able to negotiate particularly good deals
on properties they are interested in purchasing as buy-to-let
investments. The combination of these two factors means we’ve
seen buoyant purchasing activity from them."
"It must be remembered that investors are dispassionate
purchasers and will tend to negotiate hard on price. With
this buying activity, the average size of landlords’ portfolios
has grown by 15% in just 9 months."
This quarter, landlords report a discernible growth in tenant
demand. As in the previous two quarters, around two-thirds
of them describe tenant demand as stable, but a significantly
larger proportion (of almost 25%) say that demand is growing.
This compares with just 19% last quarter and just under 21%
two quarters ago. A very small but steady 1.5% of them describe
tenant demand as booming.
"Although the experience of a majority of landlords
is that demand is stable, almost one in four reports that
is growing, up from one in five last quarter," said
Mr Heron. "Not surprisingly, this feeds through positively
into investors’ own buy-to-let business activity. 23%
of them say their business is on the increase, compared with
18% last quarter." Over 70% of landlords say their buy-to-let
business is stable."
The healthy state of the market in terms of tenant demand
also translates into a sharp decline in void periods – the
time during which a property remains empty between lettings.
"Between early 2002 and summer 2004, the general trend
in voids was upward, but now we seem to have turned the corner," continues
John Heron. "Since last May, there have been three successive
quarters of falling voids, from 3.0 weeks then to 2.65 weeks
now. That’s the lowest level for over two years, and
another indicator that demand for rented homes is strong
relative to the available supply. It’s important for
landlords to be able to let their properties quickly as and
when they become vacant."
Landlords continue to be cautious in terms of the level
of borrowings they have relative to the value of their properties.
As last quarter, almost two thirds (66%) have borrowings
of less than half the value of their property portfolios,
while more than a quarter (27%) have borrowings between half
and three quarters of the value. A meager 6% have borrowed
more than three quarters, and none more than 90%.
John Heron continues: "Average gearing levels have
fallen steadily over the past 3 years, from close to 50%
in early 2002 to the current level which has stabilised at
around 39%. This shows that as property values have risen
over that time, investors have not increased their borrowings
to the same extent. Caution remains the order of the day."
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