By contrast, in 2008, a typical landlord would have lost 8.8% even after allowing for rental income. This means for 2008, a typical landlord lost £23,000 in capital as the property fell in value, and earned £7900 in rent for the full year, leading to a total loss of £15,100.
David Brown, commercial director of LSL Property Services, said: "After a difficult year, the end of 2009 has seen buy-to-let return as a profitable investment. Returns have not only turned positive- they’ve hit an 18-month high. Property bought a year ago and rented out is making a handsome profit for investors. With property prices rising, landlords are making impressive capital gains as each month goes by too. In November, landlords chalked up £1474 in capital gains on a typical rental property."
Total annual returns had bottomed out in February, hitting -11.1%, before reaching their peak in November. House prices registered seven consecutive months of increases, rising 5% on their April 2009 low. Rents have bounced back from a low in February of £648 to a high of £669 in September. Dropping slightly over the last two months, the average rent in November was £665.
For 2010, landlords can expect to make £8000 in rental income and at slightly below current trends, capital gains of around 5%, equivalent to a capital return of around £8000. This would bring a total return of £16,000, or just under 10%.
Brown said: "Houses have clawed back much of the value they lost during the downturn, fuelling returns for investors. House prices won’t race up next year at the rate we’ve seen since April.
"The impact of public spending cuts is looming on the horizon and continued mortgage rationing is still a concern. We should still see a small rise of about 5% over the next 12 months, but these factors could conspire to restrain price inflation in 2010.
"2009 marked a watershed for the private rental sector, and landlords have had to ride out the economic storm. 2010 is likely to be equally critical with regulation of buy-to let mortgage lending set to be introduced. Regulation should help filter out unscrupulous mortgage advisers which will be positive for the sector.
"The downturn has already pushed many of the short-term investors 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."
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