The rate of return on the total cost of a buy-to-let investment has fallen by 0.1% since summer to reach 9.52%, reveals a quarterly index of rental returns from the Association of Residential Letting Agents.
The return on an initial cash investment of a deposit of 25% of the total value of a buy-to-let property is now 18.89%. This is down 0.25%.
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.
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 are used to fund 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 Lender: Birmingham Midshires Solutions, GMAC Residential Funding, NatWest Mortgage Services, Paragon Mortgages and Standard Life Bank.
Gross rental returns are calculated from ARLA surveys of over 500 letting agents countrywide.
John Crossley, chairman of ARLA, says: “As the ARLA Indices build the investment picture each quarter, they will become the most important guide available for bury-to-let investors, letting agents, financial advisers and mortgage lenders.”