ARLA, the Association of Residential Letting Agents has published its latest quarterly survey of member letting agents. The survey shows buy-to-let properties appreciated by an average of nearly 10% during the fourth quarter of last year and rental returns have shown a marginal increase.

The survey, the largest of its kind for the private rented sector, also showed that the average number of new tenancies signed up has been rising over the past three quarters and it is taking slightly fewer viewings before an offer to rent is made.

The rates of return on the cash purchase of a buy-to-let investment, including both rental yield and capital appreciation and taking void periods into account, average 11.39%. The lowest rate was in prime central London with 10.81% and the highest was in the North West with 12.19%

The returns on a buy-to-let investment made with the help of a mortgage (a geared investment) averaged 24.04. Again the lowest returns were in prime central London at 22.60% and the highest were to be found in the North West where returns on a geared investment averaged 25.97%.

Oversupply

However, there is still an oversupply of rental property. Nearly two thirds of all ARLA members report that they have more properties on their books than tenants. For the latest quarter, 64% of respondents reported an oversupply compared to 55% in the previous quarter.

Commenting on these results, Robert Jordan, President of ARLA, said that overall the buy-to-let market remains a stable segment of the private rented sector.

"All the indications are that good properties priced for their local markets can be let quickly. It is the failure to keep properties in good order, buying the wrong property for the local market and asking rents that are too high that are the common reasons for long void periods."

Capital values

Capital values range from an average of £677,000 for a rented house in prime central London to an average value for flats away from London and the South east at £120,000. Overall, the average value of rented houses has increased by 9.5% from £303,700 to £323,600. Rented flats have increased in value by 9.1% from £185,700 to £202,700.

Rents

In the last quarter average rents ranged from £599 a week for a house in prime central London to £121 a week for a flat in Scotland, Wales or Northern Ireland. Throughout the country, average achievable rent levels are believed to have decreased marginally.

In prime central London, detached houses have done poorly while rent levels for flats have held up well. In the rest of the South East, rent levels appear to have stabilised while in the rest of the UK more respondents say that achievable rent levels have increased than decreased.

The ARLA quarterly survey of the buy-to-let sector is published in association with the ARLA panel of mortgage lenders, Birmingham Midshires, GMAC Residential Funding, NatWest Mortgage Services, Paragon Mortgages and The Mortgage Business. This is the largest survey of investment and returns in the private rented sector. It also forms the basis for the ‘ARLA index’. This allows investors in residential rental property to compare buy-to-let with the indices available for other forms of investment.

The ARLA index for the fourth quarter of 2003 stood at 102.0 for the cash purchase of a buy-to-let property and 103.7 for a geared investment. (2002 was Base 100 for the inaugural ARLA index in Quarter 3 2002). This compares with an Index figure of 100.1 for cash purchase investments in the previous quarter and 102.8 for geared investments.

Said Robert Jordan, "As well a talking to the experts, both letting agents and financial advisers, it is worth spending a few minutes looking at the ARLA research figures. These take account of rents, appreciation and voids as well as average house prices over the past twenty years. It is the best way to get a well-rounded picture of buy-to-let as an investment both nationally and regionally."