Buy-to-let market in line for rental surge

CONFIDENCE is returning to the buy-to-let property market after a rebound in annual returns, it has been claimed.

Landlords can look forward to annual returns averaging 16,000 next year as the housing market continues to stabilise, according to LSL Property Services, the UK's biggest lettings agent group.

The average UK landlord has recorded total annual returns for 2009 of 4.1 per cent, it said yesterday , with an average rental yield of 4.6 per cent offsetting falling house prices. In contrast, the typical landlord lost 8.8 per cent last year as capital values and rental revenue plummeted.

Annual returns had slumped to -11.1 per cent in February before the market was boosted by seven consecutive months of house price increases. The average rent slipped to a low of 648 in February, recovering to 665 in November.

David Brown, commercial director at LSL Property Services, said any investors who bought property a year ago to rent out would be making a hefty profit.

The average landlord is likely to make about 8,000 in rental income next year, believes Brown, with capital gains taking total annual returns to 16,000. Landlord confidence would be boosted by a fall in the number of "reluctant landlords" who moved into buy-to-let after failing to sell their homes, he added.

"Buy-to-let is an essential part of our housing market – we need well-capitalised, experienced, professional landlords," said Brown. "With returns rising, they can once again look forward to investing more in the sector to meet our housing needs."

But the Association of Residential Letting Agents warned yesterday the market would be tougher next year. It predicted that a growing number of tenants would be unable to pay rent if unemployment rises further, while tenants will continue to be at risk from landlords defaulting on mortgages.