PARAGON Mortgages’ July buy-to-let index shows landlords’ rental incomes up strongly by 2.79 per cent from the previous month.

Property values rose by even more with a 5.54 per cent rise as the market continues to pick up on the back of growing buying activity from spring into summer.

Rental incomes rose to £9,133 from £8,930 last month, the largest increase in 10 months and rents are now 5.18 per cent higher than a year ago.

Buy-to-let rents are clearly rising at well above retail price inflation rates, which mirrors the strong growth in rental demand.

At the same time, the average value of properties purchased by landlords rose from £111,712 to £117,902, which reflects the general recovery in the residential market.

With the rise in property values, buy-to-let rental yields declined slightly (down 2.6 per cent) to 7.75 per cent - against the trend of the past few months.

John Heron, managing director of Paragon Mortgages, said:

“Since March this year, landlords have enjoyed steadily rising rental incomes, helped by strong and sustained demand from tenants.

“Many of these tenants are prospective first-time buyers who have been unable or unwilling to make that initial leap onto the housing ladder.

“To meet this tenant demand, they have been building their portfolios and have benefited from a slower market for owner-occupiers, enabling landlords to snap up homes at very attractive prices.

“More recently, with market activity picking up, bargain house prices have been more difficult to achieve and this is reflected by the very high 5.54 per cent house price rise recorded this month.

“This has had a negative impact on yields - which have slipped from 7.95 per cent to 7.75 per cent.”

There are some signs of yields evening out across the country, as most higher-yielding areas saw slight falls while lower yielding regions (Greater London notably) saw marginal rises.

The North is now the only region where landlords are achieving double-digit yields (10.45 per cent) - and is also the region with the cheapest properties (£51,779).