Gearing 'has helped landlords maintain yields'

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Many landlords have been able to shelter themselves from rising interest rates and higher borrowing costs by altering the gearing on their portfolio, a new study has revealed.

Reports earlier this week suggested that rising interest rates meant that yields from many landlords had dropped or even become negative.

However, Paragon Mortgages has revealed that landlords have circumnavigated this problem by reducing the gearing - the proportion of borrowing to the level of equity in the portfolio - on their properties.

In fact, a recent Paragon study showed that average gearings for landlords in the UK have dropped from 48 per cent in 2002 to 38 per cent in 2007.

"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," explained Nigel Terrington, chief executive of the company.

"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."

Reports suggest that uncertainty about the future direction of house prices is encouraging more people to rent, increasing demand for landlords' properties.

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