Terraced houses produced higher yields

The property boom has forced many first time buyers to keep renting and boost the buy-to-let market, according to the mortgage lender Paragon Mortgages.

Paragon said landlords were filling the market for would-be first time buyers who cannot afford to get on the property ladder.

The lender's research suggested average prices in the rental market remained steady in April, amid recent reports that the property market as a whole is slowing.

"Despite what some people are saying, buy-to-let is not set for a tumble - there is no bubble and there's nothing to burst," said John Heron, Paragon's managing director.

North/south divide

The lender said yields, which measure rent as a proportion of the price paid for the property, rose to 7.97% in April from a low of 7.91% in January.

But the prices landlords paid for a property fell to �109,669 from �111,997.

Mr Heron suggested there was "clear stabilisation" of rental values and that demand remained high in all areas of the country.

However, the group found a clear north/south divide in terms of returns, with the highest yield emerging in Yorkshire.

Properties in the region produced an average yield of 10.3% in April compared with just 6.84% in Greater London.

This they put down to the high price landlords must pay to acquire property in London and the South East, minimising their returns.

Paragon suggested terraced houses were the best investment for landlords, while flats appeared to give the worst returns.