According to LSL, landlords enjoyed a 7.6% annual return on their investments by the end of December 2009 – an average return of £12,740. This was a combination of modest capital gains of £4,831 on each property and £7,909 in rental income. The value of their properties rose 3% in the year while rental income after void periods added a further 4.6%.
By contrast, in 2008, a typical landlord would have lost 8.8% even after allowing for rental income. They lost £23,000 in capital as the property fell in value, and earned £7,900 in rent for the full year, leading to a total loss of £15,100.
The research showed that an increase in property values and a recent slight drop in rents caused a dip in yields in December. Landlords’ properties rose in value by 0.4% in December. By contrast, the average UK rent fell slightly in December, down 0.4% to £661 per month. Rents have corrected slightly since September giving up a third of the sharp rent rises in the summer. Rents ended 2009 0.2% higher than the previous year.
David Brown commercial director of LSL Property Services concluded: “2010 is likely to be an interesting year for the buy-to-let market. The proposed introduction of regulation should help filter out unscrupulous mortgage advisers which will be positive for the sector, particularly for inexperienced landlords. The downturn has already pushed many of the short-term speculators out of the market too. Buy-to-let is an essential part of our housing market – we need well capitalised, experienced, professional landlords. With returns rising, they can once again look forward to investing more in the sector to meet our housing needs.”