David Brown commercial director of LSL Property Services said: "October was a watershed month for property investors. The spectre of losses on their investments is finally being exorcised and they can look forward to property again providing them a decent return. Rental income has been the key to an early return to profit.
"Those who timed their investments well are already doing even better. Brave investors who jumped back into the market in the spring are enjoying very healthy returns with a good balance of income and capital appreciation. But these are the lucky few. Mortgage supply is still severely constrained meaning the private rented sector is unable to grow as quickly to meet the needs of tenants clamouring for homes."
Tenant arrears improved markedly. After summer holidays caused a sharp spike in the number of tenants who failed to pay their rent on time, by the end of October, had shrunk to 495,000, equivalent to 14.6% of UK tenancies, the lowest level since LSL began calculating the figures a year ago. Some 10.3% of rent was still unpaid by the due date down from 11.5% in September.
Brown said: "The improvement in rental arrears is due to landlords being less tolerant of non-paying tenants and the rise in the number of would be first-time buyers marooned in rented accommodation by the mortgage drought. These people tend to be in employment and highly motivated to maintain a good credit record. But the recession seems to be hitting those at the bottom harder. Those in cheaper properties are finding it harder to keep up with the rent than those in more expensive homes."
Meanwhile, rents slipped back slightly in October, following four consecutive months of recovery. The 0.1% fall was driven by London, where rents gave up 1.4% of the 7% increase they had seen in the previous five months. Most regions saw rents rise, but the large size of the rental sector in London pulled the average national monthly rent down to just under £669.
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