Money News
Residential landlords have sheltered themselves from rising interest rates and higher borrowing costs by reducing the gearing on their portfolios, research from specialist buy-to-let lender Paragon has revealed.
The average landlords' portfolio gearing - the proportion of borrowing to the level of equity in the portfolio - has fallen from 48% in 2002, to 38% in 2007. And the level of gearing for landlords with 3 or fewer properties is even lower at just 25%, quashing suggestions that these operators will bail out of the buy-to-let market if rental yields contract.
As interest rates have gradually risen over the past 5 years from 4% in 2002, to 5.75% now, landlords have ensured that their returns - after financing - remain high by lowering the ratio of debt to equity across their investments.
Nigel Terrington of Paragon said: "Doom-mongers simply look at a 6% yield and a typical mortgage repayment rate of just over 6%, then assume that landlords are making a loss after financing.
"Even for those with a higher portfolio gearing this is not the case. Landlords do not have 100% debt, in fact their average debt is just 38% of their portfolio value and their effective yield, even after financing, remains very attractive. In the main, landlords are shrewd investors and business people who handle their assets with skill."
Terrington added: "Our index has shown that rental yields have remained stable for over a year, but borrowing costs have risen substantially. In addition to increasing rents, landlords have lowered their portfolio gearing and consequently kept their net returns fairly stable too."
26 September 2007 © Moneyextra.com
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