Buy-to-let investors can expect to make a total return of more than 13% over the next 12 months, if rents and property prices continue to increase at their current rate.
Total annual returns on the average rental property hit 6.2% in August, up from 5.6% in July, according to the latest Buy-to-Let Index from LSL Property Services.
In absolute terms this represents an average return of £10,207, with rental income of £8,051 and a capital gain of £2,156.
If rental property prices continue to rise at the same pace as over the last three months, the average buy-to-let investor in England and Wales could expect to make a total annual return of 13.1% over the next 12 months, equivalent to £22,065 per property.
The research also showed rents across England and Wales accelerating in August to the second-highest level on record, just £1 below the all-time high of October 2012.
The average monthly rent in August and £743, up 0.7% on July.
Over the last 12 months, the average rent in England and Wales has risen 1.3% and 4.8% in London, where tenants pay an average £1,126 a month.
Tenants' finances are healthier, with the total amount of late rent down by £10 million to £263 million since July.
David Brown, commercial director of LSL, said: “A powerful surge of capital accumulation is re-joining solid rental income. And it seems that potent combination means landlords can look forward to even better returns over the next 12 months.
"Healthier tenant finances are supporting bottom line returns, and are also a sign of the increasing maturity of the market.
"Autumn brings the seasonal peak for the rental market, in part due to the spike caused by student renters, and the sheer volume of lettings activity shows demand this year is as strong as ever.”
David Whittaker, managing director of Mortgages For Business, said: “The rental market is approaching the busiest time of year – and the first signs of that autumn rush are already apparent.
"The results of the LSL index are encouraging. We are certainly seeing growing numbers of new investors looking to take advantage of competitive buy to let rates and as long as they have clean credit profiles placing these deals among the mainstream BTL lenders is relatively straightforward.
"Professional landlords too are seeking to expand their portfolios and there is much refinance activity as a result as they go about raising funds to make further purchases. Placing these deals is more tricky as the majority of lenders continue to steer clear of complex borrowing scenarios.
"Thank goodness for the likes of Aldermore, Shawbrook and the handful of other specialist lenders filling a much needed gap in the market. Experienced landlords are a vital component of the private rented sector and should be supported in their endeavours to expand.”
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