Buy-to-let property returns could soar to over 10%

owner and tenant

Total annual returns from buy-to-let property in England and Wales could rocket to 10.7% over the next 12 months, equivalent to an annual return of £17,657 based on the average rental property price of £164,425.

Rising property prices in the first three months of 2012 have so far pushed the total annual return on a buy-to-let property to 5%, an increase from an average of 2.7% a year ago, according to LSL Property Services. This marks the highest yield since December 2010.

LSL believes that if house prices continue their upward streak – the property expert reports that house prices rose by 0.2% in March – then the average investor could pocket a yield of up to 10.7% in the year ahead.

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Landlords benefit

Recent research from specialist lender Paragon shows that landlords in the North West benefit from the highest yields, earning a yield of 6.6% in the first quarter of 2012.

While landlords benefit from the housing market slump, there is little respite for tenants as the average rent dipped by just 0.3% in March, from a monthly average of £707 to £705 – a saving of just £2, according to LSL.

Despite this small monthly drop, rents continue to rise year-on-year, with the average tenant forking out 2.7% more for their home than last spring.

London continues to see the biggest increase in rental values, with the average rent up 4.9% year-on-year. Conversely, rents have only fallen in two regions – in the East Midlands and the North West, where rents are down 2.2 and 0.4% respectively over the past year.

David Brown, commercial director of LSL Property Services, admits that the small dip in rents is "likely to be shortlived".

"With the passing of the stamp duty deadline increasing the cost of moving, and banks' funding conditions likely to limit high value mortgage lending to first-time buyers, would-be buyers will be more reliant than ever on rented accommodation," he says.

This article was written for our sister website Money Observer