Anyone who tries to argue that the buy-to-let market and the private rented sector is unstable is not reading the figures correctly, points out the Association of Residential Letting Agents president, Robert Jordan. Buy-to-let stability is pointed up by difference in rents and yields, the association says.

The average capital asset value of houses and flats in the private rented sector remained stable during the first quarter of the year. This left the Association of Residential Letting Agents (ARLA) buy-to-let index at exactly 100 for cash purchases of buy-to-let property and 100.1 for property investment geared with a mortgage.

While actual rents received have risen since the second quarter of last year, yields have fallen against the continuing increase in capital values. This has led ARLA to warn that buy-to-let investors must be sure they understand the difference between the two.

The projected annual rate of return over five years on a cash purchase of buy-to-let property is 11.7% and for geared investment the annual rate of return is 23.21% per year. These figures are based on current rental returns and average house price inflation over the past twenty years of 8.55%

These figures are contained in the quarterly ARLA Review and Index published today, April 14. Backed by the ARLA panel of mortgage lenders, Birmingham Midshires, GMAC Residential Funding, NatWest Mortgage Services, Paragon Mortgages and The Mortgage Business, the ARLA Review and Index is based on the largest survey of its kind in the private rented sector. It draws data from nearly 500 ARLA member letting offices.

The review showed a marginal fall in the average annual rate of return for cash investments of 0.22% and for geared investments 0.83%. The lowest rate of return for a cash purchase was in prime central London with 10.82% and the highest in the North West with 12.01%.

For geared investments, again the lowest was prime central London with 22.32% and it was highest in the North West with 25.26%. Rates of return include both rental yields and capital appreciation.

The average weighted rental return on a rented house has fallen from 5.4% to 5.1% since December 2003 and the average on a rented flat has fallen from 5.6% to 5.4%. Net annual rental yields, after accounting for void periods, averaged 4.86% across the country. For a geared investment the average was 2.02%.

However, ARLA President Robert Jordan pointed out, "We issue rental yields as well as reporting on actual rents received. Investors must remember that yields do not reflect average rents received. Yields will always be seen to fall against continuing house price inflation but it is the actual level of rent received that matters. We have reason to believe that many investors and potential investors do not understand this difference."

As an example, Mr Jordan pointed out that since the second quarter of 2003, house prices have increased by 8.2% and prices of flats by 7.0% according to ARLA member surveys. As a result, yields have fallen from 5.8% to 5.3%. Meanwhile, rents have risen over the country as a whole. House rents rose on average from £1,393 a month to £1,410. The average monthly rent for flats rose from £817 to £904.

Over the past quarter in prime central London, average monthly rents for houses were £2,588. This is 59% more than the average rent of £1,626 for flats in the area. In the rest of the South East, the average rents received were £1,117 for houses and £739 for flats. In the rest of the country the figures were £804 and £551 respectively.

ARLA members report that the average void period across the country is unchanged at 31 days a year and there was a 5% drop in the number reporting an over supply of properties. Despite this, ARLA members report that they showed an average of 6.5 prospective tenants around a property before letting it against 5.6 in the previous quarter.

Said Robert Jordan, "Anyone who tries to report that the buy-to-let market and the private rented sector is unstable is not reading the figures correctly. The market remains stable and, as our recent investor survey shows, the average investor landlord is expecting to hold their property investments for between ten and twenty years. This shows a full understanding of the buy-to-let market and the contra-cyclical nature of house price inflation and rental demand."

Both the ARLA Review and Index and the results of the ARLA members survey are available on www.arla.co.uk/