9th January 2006

The ARLA Review & Index for Residential Investment Q4 2005 619k

While most Buy to Let landlords invest in residential property for the long term, only five percent invest solely for the rental income. Instead, over half of all investor landlords are looking to create a nest egg for themselves some 15 years ahead. The remainder look for a mixture of income and capital gain.

These figures were published today, January 9th, in the ARLA Review, Index and Investor Profiles for the fourth quarter of 2005.

Nearly two thirds of the investor landlords questioned in the widest regular survey of investors in the private rented sector said that they expect to enlarge the size of their portfolios during 2006. This is the second consecutive quarter to show this upward trend and it reverses the marginal decline seen between June 2004 and June 2005.

Said Adrian Turner, Chief Executive of ARLA, "It is notable that the upward trend began well before last month when the Chancellor killed off residential investment using self invested pension plans. It shows that Buy to Let remains highly regarded as a stand alone investment."

Nine out of ten (89%) of landlords questioned said they would not sell their investment properties should house prices fall. On average, they expect to hold their properties for over fifteen years.

The ARLA Buy to Let Index for the fourth quarter 2005 for cash purchases stood at 100.5 (100.4 in the third quarter) and for a geared investment the Index at 98.1 (97.9). Base 100 was set for the third quarter 2002.

The ARLA Index and the agent and landlord surveys are supported by the ARLA panel of Mortgage Lenders, Birmingham Midshires, GMAC Residential Funding, NatWest Mortgage Services, Paragon Mortgages and The Mortgage Business.

The surveys show that tenants are staying in rental property for an average of 16.8 months.

Commented Adrian Turner, "This utterly refutes reports that the structure of the private rented sector makes for short tenancies. It is obvious that through Buy to Let, tenants are staying for a comfortable period. It is an example of how professional agents and buy to let landlords have transformed renting to such a degree that it has become socially acceptable and the first choice of many."

Returns on a cash purchase of a property investment over a five year period stand at 11.3% a year. On a geared investment, assuming a 75% Buy to Let mortgage, returns average 22.74%. Five years is taken as the minimum period for which it would be viable to make a buy to let investment given the purchase and setting up costs.

The lowest average returns in the whole country are reported for the South West at 10.66% for a cash purchase and 21.27% for a geared investment. The highest returns of all are to be found in Scotland, Wales and Northern Ireland, at 11.83% for a cash purchase and 24.25% for geared investments. The highest returns in England are found in the North East with 11.42% for cash purchases and 23.23%, geared investment.

The latest survey shows that it is becoming more common for landlords to own properties away from the areas where they live. Comparing the distribution of properties with the distribution of landlords shows a higher proportion of landlords saying they have properties in the Midlands and North of England than actually live there - 50% of properties against 33% resident.

This sort of ratio applies to a lesser extent to other areas and the survey shows that some landlords own properties in more than one region.

The survey also demonstrated that awareness of tenancy deposit schemes is increasing among buy to let landlords, although nearly half have yet to take the time to assimilate the details.

The ARLA Review & Index,along with the quarterly surveys of landlords and letting agents is available on www.arla.co.uk

The ARLA Review & Index for Residential Investment Q4 2005 619k

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