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Buy-to-let market enjoys stronger annual returns

Rents fell fastest in the south east, down 3.3% in the month. Half of the country’s regions saw declines, with only the midlands and east of England seeing increases in November.

With house prices having risen 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. Adjusted for void periods (when a rented property lies vacant between tenancies) yields were 0.3% lower.

Nevertheless, as the worst of the house price falls in 2008 drop out of the figures, annual returns continue to improve.  Investors buying property a year ago have made a total return of 4.1%, a combination of a small loss of 0.4% on lower house prices, and rental income adjusted for average void periods. This is the best annual total return on LSL’s record (which begins with property purchased in June 2007) and now far exceeds that available on regular deposit accounts for the first time since the credit crunch began.

In November, a typical rental property made £809 in capital gains and earned £665 in rental income, a total of £1474.

David Brown, commercial director of LSL Property Services said: "Property bought a year ago and rented out is now making good returns for investors. Those who bought at the April low point are doing even better. Landlords are making impressive capital gains as each month goes by.

"To some extent the recent fall in rents is a seasonal phenomenon. Tenant demand slackens off in the late autumn and landlords are less able to charge a premium. But it may also reflect an underlying recognition that rapid summer rent increases had begun to race ahead of peoples’ ability to pay. We do not expect a repeat of the relentless monthly declines in rents seen from late 2008."

Tenant arrears worsened in November – 525,000 tenants had not paid their rent on time in November, up from an unusually low 495,000 in October. Collectively, they owed £261million in overdue rent. Serious arrears (more than two months) were broadly stable.

Brown said: "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.

"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 benefited from an increase in high quality tenants unable, or unwilling, to buy their first home for themselves."

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