Landlords protect themselves from falling yields

The UK's buy-to-let investors are protecting themselves from rising costs by reducing the gearing on their portfolios.

Portfolio gearing relates to the proportion of borrowing to the level of equity within the portfolio.

Paragon is reporting that the average ratio has dropped from 48 per cent in 2002 to 38 per cent in 2007.

It shows that landlords are making moves to protect themselves should yields begin to fall and could help to prevent a housing crash like the one seen in the 1990s.

"Doom mongers simply look at a six per cent yield and a typical mortgage repayment rate of just over six per cent, then assume that landlords are making a loss after financing," said Nigel Terrington, Paragon chief executive.

"Even for those with a higher portfolio gearing this is not the case. Landlords do not have 100 per cent debt, in fact their average debt is just 38 per cent 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," he added.

It was recently revealed by the Association of Residential Lettings Agents that confidence in the buy-to-let sector among investors is high, with 90 per cent saying they would not sell their properties if prices fell.

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