29th September 2003

The ARLA Index of Returns on Buy to Let: 3rd Quarter 2003 9k

The fourth issue of the quarterly Index of Buy to Let Returns marks the end of a volatile 12 months for much of the world, by remaining stable. It shows the Cash Purchase Index for Buy to Let investors standing at 93.2, compared to Base 100 in September 2002. The Geared Investment Index stands at 94.5, against the same base.

The ARLA Buy to Let Index was launched in September 2002 and is backed by the ARLA panel of leading Buy to Let specialist lenders, Birmingham Midshires, GMAC Residential Funding, NatWest Mortgage Services, Paragon Mortgages and The Mortgage Business. The Index also shows the current projected rate of return for Buy to Let investors over a five year period.

These projected rates take account of both rental yields and capital appreciation. With an outright cash purchase of an investment property, the net annual compound rate of return is 8.97% (previous quarter 9.30%). For a geared - mortgaged - investment with a deposit of 25%, the projected return is 18.11% (previous quarter 18.65%).

Both these rates of return are based on an average rate of house price inflation of 6%. They put the North West of England at the top of the league for returns on both a cash purchase investment, at 10.21%, and for a mortgaged investment, at 21.39%.

However, variations in the combined rates of return since the last quarter were minimal. Some small increases registered for the whole of the north of England and Scotland and Wales against small declines elsewhere. The greatest variation was a drop of only 0.82% for cash purchases and 1.90% for geared purchases in the South West.

The recently price sensitive areas of London and the South East registered very small changes. Prime Central London was down by less than a half percent (0.43%) for cash purchases and 0.82% for geared investments. The rest of London showed a fall of 0.18% for cash purchases and 0.15% for geared investments. The South East showed falls of 0.27% and 0.37% for cash purchases and geared investments respectively.

Commenting on the latest set of Indices, John Crossley, Chairman of ARLA, said, “These figures reflect the stability of the Buy to Let market, however investors approach it.”

Mr Crossley also welcomed the first anniversary of the Buy to Let Index. “As time goes by, the ARLA Index will be established alongside the other indices, such as the Footsie, and enable investors to make informed decisions and comparisons. The Index is a tribute to the long term thinking of the ARLA panel of lenders,” he added.

The Index is based on quarterly surveys of all ARLA member letting agents and is the largest of its kind. The survey provides the information on rents as a percentage of property values and on average periods when the property is not let. Mortgages are assumed to be taken out on an interest only basis at Bank of England base rate plus 1.75%.

The five year projection period has been selected to reflect the likely minimum lifetime of a Buy to Let investment, although ARLA surveys of landlords suggest that a high proportion of investors are long term, expecting to hold properties for between 15 and 20 years.

Full details of the ARLA Index and other ARLA surveys are available on www.arla.co.uk

The ARLA Index of Returns on Buy to Let: 3rd Quarter 2003 9k

Home | Agent Search | Information | Buy To Let | Contact | News & Press
Training | Members Area | Privacy Statement and T&C