House price slowdown fails to hit buy-to-let market

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Landlords who invested in buy-to-let properties last year have been insulated from the impact of the slowdown in the housing market, new figures showed yesterday.

The value of the average property bought for rental use has risen by almost 20 per cent over the 12 months to September, according to Paragon Mortgages. This compares with a rise of 15.5 per cent for residential homes as a whole, according to recent figures from Nationwide building society.

Despite warnings last year of a speculative bubble in buy-to-let property that could burst, leaving investors out of pocket, landlords have reaped rewards this year.

Prices have risen by at least 1 per cent - or £1,000 before tax and costs - a month in all but three of the past 18 months, taking the average cost of a new investment property to £125,246, 19.8 per cent higher than in September last year. Values of buy-to-let properties have increased by an average of 2.04 per cent per month during the past three months, a total rise of 6.22 per cent.

"[This] outstrips price rises seen in the residential property market over that time," Paragon said. However, investors benefited from cheaper purchase prices than owner-occupiers. John Heron, Paragon's managing director said: "This reflects the fact tenant demand is strongest for basic, no frills homes rather than upmarket houses or glamorous apartments."

Meanwhile, landlords have also benefited from a rebound in rental levels, up by 1.79 per cent this month, taking the average rental income to £9,521.

Average rents now stand 4.50 per cent higher than in September 2002, and have risen by more than 8.32 per cent since January this year, according to Paragon.

However, for new investors, soaring prices have cut the profit their investment will yield.

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