The lettings market saw a steady increase in activity in April compared with previous months. In particular country offices have surged ahead of London, said Hamptons International.

Their country network increased the value of new business by 77% compared to this time last year. This was most notable in the Esher, Guildford and Sunningdale areas which saw increases of above 100%.

Mortgage lenders are supporting the market by offering good fixed rate deals which are enticing landlords back to the lettings market." Commented Dayle Hodgson, senior manager for the Central and South London cluster.

Jonathan Cornell, director of Hamptons International Mortgages said, "So far, 2005 has seen more aggressive buy to let pricing than ever before. Incredibly some buy-to-let rates are lower than the residential rates of some lenders. We have also seen more product innovation than ever before."

According to Hamptons, there has been a steady return of the investor landlord, taking advantage of the current mortgage deals. This may have contributed to an 18% increase in market appraisals during April, compared to the same time last year. In London, market appraisals resulted in a 14% increase in new business compared to April 2004.

"One of the factors limiting the amount of money a prospective landlord can borrow is the need for the monthly rental income to exceed the mortgage payment by a certain multiple, and as rents have been under pressure recently lenders have found clever ways of getting around this. Some have reduced mortgage multiples from 1.3 to 1.25 for example," said Jonathan Cornell.

"The most popular rate at the moment is a three year fixed rate which is just below 5% but which has a 1.5% arrangement fee. The rental calculation is based on the pay rate, even though when you add in the fee, the overall cost of the mortgage is higher but still very competitive. Products like this are helping landlords borrow as much as they can to minimise their deposit and maximise their tax relief."

Additional good news for landlords comes as the Government has unveiled its changes to the pension rules. Self-Investment Personal Pension (SIPPS), an initiative which should bolster the lettings and sales market, is due to commence in 2006.

Hamptons International's strategic planning and business development director, Ian Trinder, outlines below the key features of the new government initiative.

From 6th April 2006 new rules come into force that mean it will be possible to invest pension funds in residential property for the first time. The change in rules will have major tax benefits for investors who take advantage of this. Residential property assets held within a Self-Invested Personal Pension (SIPP) will benefit in the following ways:

• Rental income from the property will be tax free.
• No capital gains tax will be payable on the increase in value of the property.
• Contributions to a SIPP will attract tax relief at the marginal rate (i.e. a £60,000 net
• Contribution to the pension fund will gain £40,000 of tax relief meaning £100,000 will be available to invest) .
• If no withdrawals have been made from the fund, no inheritance tax is payable.

The changes in these pension rules mean that it will be more tax advantageous to invest in residential property.

In the current environment where capital value growth is widely expected to be modest compared with recent years, returns on residential property will be driven by rental yield.