Buy-to-let cushion well padded, Paragon figures suggest

Residential buy-to-let landlords on average are only carrying 41% loan-to-value gearing a survey commissioned by Paragon Mortgages suggests.

The figure has dropped from 44% in November 2002, while the number of properties per average portfolio has increased from 9 to more than 11 properties.

This suggests the sector is better equipped to handles a slowdown in rental income than some believe, and that most landlords are taking out property investment loans they will be able to maintain interest payments on even if the market stalls.

"Our findings show that buy-to-let landlords as a breed are prudent individuals, and overall have reduced the gearing across their portfolios," says John Heron, managing director Paragon Mortgages.

Despite soaring property prices, such landlords have focused on cheaper properties in areas where rental demand is high, but more importantly where prices keep rental yields higher compared to areas of more expensive property.

Paragon cites Council of Mortgage Lender figures in reporting landlords expect the net value of their portfolios to increase by about 6.6% in the next 12 months – including capital appreciation and asset disposals and acquisitions.

This is a low figure compared to the current annualised rate of house price inflation, which runs at up to about 17% depending on which lender’s house price index is used.

CML figures also suggest buy-to-let landlords are better borrowers than owner-occupiers, with fewer loan defaults and arrears attributed to them.