Constraints in supply bolstered both rents and yields in June, according to the latest Buy-to-Let Index from LSL Property Services plc. – 16 July, 2010

The average rent in the UK rose by 1% in June. Rents have risen for five successive months, and are 3.2% higher than a year ago – the equivalent of £23 more per month than a year ago. The average rent is now £673 per month, the highest level since November 2008.

Commenting, David Brown, commercial director of LSL Property Services plc, commented: “Rents have continued their upwards trajectory, and are just a few pounds away from their peak levels in 2008.

“The seasonal pick-up was exaggerated by the squeeze in the supply of rental accommodation. Although landlords weren’t clobbered as badly as feared, it is possible that some left the market in the run-up to the budget, and concerns over the new capital gains tax rate dampened the number of new investors entering the market in June.

“But the restricted availability of buy-to-let mortgage finance has been the underlying factor holding back investment in the sector and the number of new rental properties hitting the market.”

London continued to lead the surge in June, with rents in London rising by 1.9% to £942. Landlords in the north also had reason for cheer as rents rose in both the north west and north east – by 1.4% and 1.3% respectively. However the west midlands bucked the national trend, recording a drop of 1.7%.

As rents continued to increase, and house prices dropped off in June, yields on buy-to-let properties snicked up to 4.9%. The house price for the average rental property fell by 0.25% compared to May, with the rate of annual increase slowing to 8% in the past 12 months.

The total return from investing in buy-to-let over the last twelve months fell slightly to 12.3% in June as house prices fell slightly. The average landlord would have made £18,983 in the past year – a combination of £7,164 in rent and £11,819 in capital gains.

With the recent house price decreases, a landlord investing today can expect to make an annual return of 3.4% over the next twelve months. This is equivalent to £5,670 on a typical UK property.