Investors in Buy to Let property will not be selling should house prices fall in the year ahead and a majority expect to acquire more Buy to Let properties. This confidence is underpinned by a continuing rise in the number of tenants looking to rent and the annual rates of return gained with rents and capital appreciation combined.

For the fourth quarter of 2004, Buy to Let returns stood at 11.23% on an outright cash purchase of an investment property and 22.43% on an investment geared through a mortgage.

The optimism displayed by investment landlords is evidenced despite ARLA letting agents reporting falling capital values everywhere during the last quarter, apart from prime central London. These falls were 7% for houses and 5% for flats in the South East and 11% and 8% for houses and flats respectively throughout the rest of the country. Prime central London bucked this trend with rises of 0.2% for houses and 0.3% for flats. The falls outside London reverse the rises reported in the previous quarter.

Clearly at odds with some commentators, these findings are reported in the ARLA Review and Index of Returns on Residential Investment for the fourth quarter of 2004 published today, 5th January 2005. Nearly 800 letting agents and individual private investors participate in the largest quarterly survey of Buy to Let investment and the private rented sector.

A third hold just one property, one in five have two properties and a significant minority hold more than ten investment properties. Overall, they expect to keep these investments for an average of 17 years.

Nearly half (44.6%) of all investors have invested to create a 'Nest Egg', while 47.8% invest for the combination of rent and capital appreciation. Only 5.5% have invested for income alone.

On average, investors have been in the Buy to Let market for more than four years. A fifth (21.7%) have held their investment properties for more than five years while just under a fifth (19%) have held investment property for less than a year. Getting on for half, (44.1%) have been investment landlords for between two and five years.

Commented Robert Jordan, President of ARLA, "A large proportion of experienced Buy to Let landlords are clearly at odds with some of the commentators. These real investors in the rental market understand both the long term nature of the investment and its resilience in the face of house price movements."

Actual rental returns reported by ARLA member letting agents are 5.0% for houses and 5.3% for flats. There is little regional variation. Houses in prime central London are producing returns of 4.6% gross and flats 5.0%. In the rest of the South East returns are 5.2% for houses and 5.4% for flats. In the rest of the country, returns averaged 5.1% for houses and 5.3% for flats.

Average rents achieved ranged from GBP30,600 a year for houses in prime central London to GBP 5,300 for flats in Scotland and Wales.

Nearly a quarter (24%) of all ARLA agents report more tenants than there are properties. 26% believe supply and demand are in balance and 49% think there are more properties than tenants. Most agents also believe that investor landlords marked time on their investment decisions in the final quarter of 2004.

"This represents a healthy marketplace. Without oversupply we would have tenants queuing around the block and the government would be in a greater dilemma over housing than it is at present," said Robert Jordan. "Obviously there are some areas where oversupply is still uncomfortably high but even here it is significantly lower than a year ago."

Other results from the ARLA Review and Index show that the ARLA Buy to Let Index (set up with Base 100 in September 2002) stands at 100.5 for the outright cash purchase of a Buy to Let property and 96.7 for a geared investment.

The letting agents report void periods are unchanged at an average of 29 days a year. There was a small drop in the number of viewings needed to let a property, from 6.1 to 5.9 visits and a rise in the number of new tenancies, up from 33 to 35 per letting office.

The quarterly Review and Index is carried out on behalf of the ARLA panel of mortgage lenders, Birmingham Midshires, GMAC Residential Funding, NatWest Mortgage Services, Paragon Mortgages and The Mortgage Business. 486 letting offices and 309 individual Buy to Let investors from more than 8,000 who subscribe to the ARLA Buy to Let website participated between mid-November and mid-December. The full results are available on www.arla.co.uk