London landlords have seen total annual returns of 14.6% in the year to January 2014, up from 11.4% in the previous twelve months.
This represents an average return of £38,104 per property in the capital – or more than five times the total return per property in areas such as the North East and Yorkshire & the Humber.
Across England and Wales, total annual returns on an average rental property have grown dramatically in the past twelve months, to 8.9% in January, up from 5.7% in January 2013.
In absolute terms this represents an average return of £14,767, with rental income of £7,961 and capital gain of £6,806.
Moreover, if rental property prices continue to rise at the same pace as over the last three months, the average buy-to-let investor in England and Wales could expect to make a total annual return of 13.0% over the next 12 months, equivalent to £22,256 per property.
Gross yields on a typical rental property stand at 5.2% as of January, down slightly from 5.3% in January 2013.
However, total returns have been boosted by capital accumulation and lower void periods between tenants.
David Brown, commercial director of LSL Property Services, said: “Rental yields remain historically high, and such rental income is still underpinned by a demand-driven lettings market.
“Meanwhile, rising prices are delivering an equity bonus for landlords – considerably boosting total annual returns. Such equity growth is also an important factor for some landlords looking to remortgage existing properties to fund new purchases.
“As mortgage availability grows and rates seem set fair for the time being, many landlords will continue to expand their portfolios.”
Average rents across England and Wales have risen 1.4% in the past year, to stand at £742 per month in January.
Annual rises come despite a seasonal fall in rents between December and January. The average rent across England and Wales fell by 0.4% on a monthly basis.
Brown continued: “Rents are now rising more gradually on an annual basis, thanks to the efforts of landlords to expand availability of tenancies. However, there still remains a dire shortage of housing in the UK.
“Powerful incentives for those with the ability to make more homes available are important in easing some of the short-term strain for tenants.
“But rents will not fall in real terms for very long while there remains such a severe mismatch between the building of new homes and the number of households looking for somewhere to live.”
Five out of ten regions saw rents fall on a monthly basis between December and January, in line with a monthly fall across England and Wales as a whole.
The sharpest monthly drop was found in the South East, with rents down 1.0%. This was followed by a drop of 0.9% in London, and a 0.7% fall on a monthly basis in Wales.
However, the West Midlands and East Midlands experienced monthly rent rises – up by 0.8% and 0.6% respectively since December.
On an annual basis, the majority of regions have seen rents rise. The South West saw the steepest rent increases, up by 3.7% from January 2013 (or £24 in absolute terms). This was followed by a 3.2% annual increase in London, and a 3.0% rise in the South East.
However, four out of ten regions experienced lower rents on an annual basis. Rents in the East of England have seen by far the sharpest annual fall, down by 3.6% (or £27) over the last twelve months.
This was followed by a 2.8% annual drop in the West Midlands, and a 1.5% fall in Wales. Rents in Yorkshire and the Humber have also dipped by 1.3% since January 2013.
Brown added: “Beyond the nationwide figures lies an even more complicated picture. Local trends can be highly detailed, while dozens of different factors can affect the rent for any given property.
“Ultimately the ever-changing patterns of demand and the availability of local property at any given time will keep very local patterns in a constant state of flux.
“Some good deals are always there to be had, for tenants and landlords alike, if they have the right information.”
Tenant finances have improved since December, with the total amount of late rent across England and Wales falling to £252m, down £78m since December 2013. As a proportion of all rent, such tenant arrears now represent 7.4%, down from 9.7% in December, and an annual improvement on late rent in January 2013, which represented 8.1% of all rent.
Brown concluded: “January blues always present a challenge. And the last six years of squeezed incomes have made those winter woes all the more difficult.
“But tenants have shrugged off the worst of the seasonal tenant arrears that we saw in December, and continued a long-term downward trend in the level of late rent.
“Equally, tenants in good financial shape are good news for landlords. Rental yields are already excellent, but as the chance of late rent declines, the risk associated with such returns is improving dramatically.”