Landlords saw a 7.6% annual return on their investments by the end of December 2009, according to the latest index from LSL Property Services.
The value of their properties rose 3% in the year while rental income after void periods added a further 4.6%. In 2009, a typical landlord made a return of £12,740. This was a combination of capital gains of £4,831 on each property and £7,909 in rental income.
By contrast, in 2008, a typical landlord would have lost 8.8% even after allowing for rental income. They lost £23,000 in capital as the property fell in value, and earned £7,900 in rent for the full year, leading to a total loss of £15,100.
David Brown, commercial director of LSL Property Services, says: "Despite the worst recession in living memory and despite house prices continuing to fall for the first few months of 2009, investment returns in buy to let were very respectable.
The £12,700 the average landlord made on a rented property during the year recouped most of the losses in the housing crash of 2008. Brave landlords who added to their portfolios will be celebrating an excellent year."
The trend in prices continues to be favourable. Landlords' properties rose in value by 0.4% in December. By contrast, the average UK rent fell slightly in December, down 0.4% to £661 per month.
Rents have corrected slightly since September giving up a third of the sharp rent rises in the summer. However, this was largely driven by falling rents in the large London and South East markets, the only two markets to have seen three consecutive months of rent declines since September. Rents ended 2009 0.2% higher than the previous year.
Yields ended the year at 4.8%. They fell from a peak of 5.1% in March as the recovery in house prices outstripped growth in rents. They remain well above the 4.2% trough at the peak of the housing market at the end of 2007, when interest rates were far higher than today to boot.
Arrears performed very well in 2009, despite the recession. On average 11.7% of rent was unpaid by the date it was due, down from 14.5% in 2008. By the 31st of December 2009, 12.5% of rent was unpaid, far less than last year's Christmas peak when 15.9% of rent was late.
Serious arrears held steady, with 1.1% of rent still unpaid three months after it was due. At the end of 2009, £282m of rent was unpaid by the date it was due, down from £346m at the end of 2008.
If house prices continue to rise at the current modest rate of 0.4% per month, equivalent to 4.9% for the full year, a typical landlord will make a total return of £16,000 in 2010, equivalent to 9.8%.
Brown concluded: "This year is likely to be an interesting one for the buy-to-let market. The proposed introduction of regulation should help filter out unscrupulous mortgage advisers which will be positive for the sector, particularly for inexperienced landlords.
"The downturn has already pushed many of the short-term speculators out of the market too. Buy to let is an essential part of our housing market - we need well capitalised, experienced, professional landlords. With returns rising, they can once again look forward to investing more in the sector to meet our housing needs."
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