25th March 2003
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The quarterly ARLA Index of Returns on Buy to Let for the Cash Purchase of a Buy to Let property stands at 98.2 against 99 for the previous three months. The Geared Investment Index has risen to 99.4 this quarter against 98.5 for the last quarter. This is as a result of the drop in the Bank of England Base Rate.
The quarterly ARLA Index, published today (March 24th), was first introduced last year to provide a simple, indexed comparison between residential property investment and other forms of investment and financial planning.
The ARLA Indices also show that rates of return on a cash purchase for a Buy to Let property dropped slightly to 9.45% from 9.52%. For a geared investment, the rate of return improved to 19.06% from 18.89%.
For the three months to the end of February it is clear that there has been little change in the rates of return for most regions. The Midlands is the only area to post any change of significance with returns for a cash purchase rising by 0.32% and for a geared investment by 1.17%.
The ARLA Index is supported by the ARLA panel of mortgage lenders, Birmingham Midshires, GMAC Residential Funding, NatWest Mortgage Services, Paragon Mortgages and Standard Life Bank. The Index uses as Base 100 the results from the inaugural index for the third quarter of 2002.
The rates of return are projected over a five-year period as this is considered likely to be the shortest time an investor would hold an investment property. The returns are calculated for a cash purchase, without mortgaging or gearing.
The returns for a geared investment assume a deposit of 25%, with the rest of the acquisition financed with a mortgage.
The ARLA Index takes account of rents achieved, base rates and likely mortgage costs, capital appreciation as defined by house price inflation and the buying and selling costs. The data for rents received is based on the quarterly survey of ARLA members. With returns from well over 500 letting agents, this is the largest survey of its kind conducted for the Private Rented Sector.
Changes in the Indices for the current quarter are based on 6% house price inflation. They show returns on a cash purchase that range from 8.95% in Prime Central London to 10.83% in the North West. For Geared Investment, returns range from 17.32% in Prime Central London to 22.34% in the North West.
Said John Crossley, Chairman of ARLA, “By incorporating all the factors into this Index, ARLA can give by far the clearest picture of investment returns in the Buy to Let market and in a way that makes comparisons with other investments possible.”
Mr Crossley stressed that every area and its rental market is different and that it is vital to take full advice before making a final decision.
“From all the anecdotal evidence we receive, this is how potential and experienced investors go about making their investment decisions. The typical Buy to Let investor, be it in a large or small way, goes about Buy to Let in a very professional manner.”
The ARLA Indices of Rental Returns with sample calculations, assumptions and sources of data are available on www.arla.co.uk
