BTL yields to rise by 0.5 per cent

With the sector expanding to represent 15 per cent of all new mortgages by the year end, landlords are expected to be in a solid position to ride out the UK economy's continued volatility.

Paragon's managing director John Heron believes that strong levels of tenant demand will drive the market forward, helping to improve rental income, strengthen yields and cut void periods to just 2.6 weeks across the market.

He believes that as buy-to-let investors are discretionary and rational buyers, they will be able to fully capitalise on the flatter housing market this year by spotting the under-valued properties and locations most appropriate for tenants.

Tterraced properties and apartments are expected to do well in 2008, with landlords predicted to shun city centre new build flats.

With financial markets expected to be more focused on the underlying credit quality of mortgage assets post-credit crunch, Paragon believes that buy-to-let will benefit in the form of better pricing relative to less attractive assets, like non-conforming.

Contrary to recent reports, the high credit standards of buy-to-let are also expected to hold firm over the next twelve months. Arrears and possessions in buy-to-let are consistently below the levels seen in the mainstream market and professional landlords are very risk averse on the whole – the average gearing across portfolios has dropped to its lowest level over the last five years, at 36 per cent.