Anual returns rising in Buy-to-let market

Annual returns in the buy-to-let market are improving, according to the latest index from LSL Property Services.

Investors buying property a year ago made a total return of 4.1%, the best annual return recoded by LSL since the index began in June 2007.

In November, a typical rental property made £809 in capital gains and earned £665 in rental income, a total of £1,474.

While house prices in November chalked up their seventh successive monthly gain, rents slipped back for a second consecutive month, falling 0.6% in November to take average rents back to levels seen in August. This follows four consecutive months of rental inflation during the summer, when rents rose at an annualised pace of 13%.

With house prices rising at twice the pace of rents over the last seven months, landlords saw yields slip to 4.9% in November, a level last seen in November 2008.

Tenant arrears worsened, with 525,000 tenants not paying their rent on time in November, up from an unusually low 495,000 in October. Serious arrears of more than two months were broadly stable.

David Brown, commercial director of LSL Property Services says: "Arrears usually spike in December as tenants hold back their rent a few days to help them get through Christmas. There seems to be an earlier uptick this year but the fact we are not seeing a deterioration in seriously delinquent tenants supports should give cause for comfort."

He adds: "In fact, arrears are still slightly below the average for the year. 2009 has not seen the feared explosion in tenants falling behind with their rent. Landlords have been especially diligent to collect their rent during the recession and have benefitted from an increase in high quality tenants unable, or unwilling, to buy their first home for themselves."