6th January 2003

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The second set of ARLA’s quarterly Indices of Rental Returns published today shows the rate of return on the total cost of a Buy to Let investment is 9.52%. This is a fall of 0.10% from the previous indices taken from the three months to the end of August.

The return on an initial cash investment of a deposit of 25% of the total value of a Buy to Let property is 18.89%. This is down 0.25%.

These Indices are based on the data returned for the December ARLA Members Survey of the Buy to Let Market.

The ARLA Indices of Rental Returns provide national and regional figures calculated both for the initial total cost of the investment property and for an investment geared with a 75% mortgage.

For the latest quarter, the North West was the only region to show a rise in the Index figures. Average rates of return have declined in London, the South West and Scotland/Wales/Northern Ireland. The Indices for the South East, excluding London, the Midlands and the North East are virtually unchanged.

As well as national figures, the ARLA Indices show the projected rate of return for the regions. These have been calculated on average rates of house price inflation assumed to be between 6% and 10%.

Changes in the Indices for the current quarter are based on 8% house price inflation. They show returns on a total cash investment that range from 10.68% in Prime Central London to 12.45% in the North West.

Where mortgages have been employed in a Buy to Let investment, returns range from 21.96% in Prime Central London to 26.32 % in the North West.

The ARLA Indices of Rental Returns are sponsored by the ARLA Panel of Mortgage Lenders: Birmingham Midshires, GMAC Residential Funding, NatWest Mortgage Services, Paragon Mortgages and Standard Life Bank.

The Indices take the average rate of return on initial Total Cost as the return based on the purchase price of the property plus initial acquisition costs. The average rate of return on initial Cash Investment is based on the cash outlay needed for a 25% deposit.

The average gross rental return as a percentage of property value is taken from the latest survey of ARLA members (December 2002). This is the largest survey of its kind undertaken in the Private Rented Sector. It incorporates responses from well over 500 letting agents throughout the country.

The 8% average taken for house price inflation is lower than the actual average rate experienced during the autumn months and can only be used as a guide.

Said John Crossley, “As the ARLA Indices build the investment picture each quarter, they will become the most important guide available for Buy to Let investors, letting agents, financial advisers and mortgage lenders.

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