Near record rental values coupled with the rise in house prices will generate average returns of 13% in the next twelve months, more than £22,000 per property, a report found.
It also revealed rents are within £1 of their all-time high at £743 a month in England and Wales. August’s figure marks a 0.7 per cent increase on July and is up 1.3 per cent on August last year.
David Newnes, of lettings giant LSL Property Services, which released the report, said if rental property prices continue to rise at the same pace as over the last three months the average buy-to-let investor should make a total annual return of 13.1 per cent over the next 12 months – equivalent to £22,065 per property.
London is driving the rise in rents in the capital rising three-and-half times faster than England and Wales over the last 12 months.
They are now averaging £1,126 in London, 4.8 per cent higher than last year. Official figures also showed that house prices in London are up by nearly 10% year-on-year, indicating the strength of demand for homes in the capital.
Wales saw the second biggest annual increase in rents, with a 2.3 per cent uplift taking average rents to £561. The South East recorded the strongest month-on-month growth, with a 2% rise pushing monthly rents to £762.
The North East saw the biggest month-on-month drop in rents, with a 0.8 per cent fall taking average rents to £523.
LSL’s findings are based on rents achieved on around 20,000 properties and its records go back to January 2008.
The findings will spark fresh concerns that Government cheap credit schemes designed to kick-start the housing market are helping wealthier investors rather than first time buyers struggling to get onto the property ladder.
Figures earlier this month revealed that mortgage lending rose by the fastest pace since before the credit crisis between April and July, with £5 billion going to landlords, up £1.1 billion on 12 months ago. Landlords are accounting for one in ten mortgages.
Across the country, rental inflation had been cooling off for much of this year in the immediate aftermath of the Government schemes to give people with low deposits a helping hand onto the property ladder asfirst time buyer numbers rose.
But Mr Newnes said that weak income growth, which has an impact on households’ ability to borrow, and a lack of housing supply means that the private rental sector is continuing to see strong demand from new tenants.
He said the upward pressure on rents is also coming from an uplift in student renters returning to the market as the new academic year begins.
Mr Newnes said: “Better availability of finance has allowed some households to leave the rental market. And rents certainly felt the short-term impact of that.
“But releasing a blast of pent-up pressure to buy a home is unlikely to change the long-term trend in renting.
“Although Government schemes are helping, buying a first home is still extremely hard on the back of low salary growth.”
Business secretary Vince Cable voiced fears of another housing bubble earlier thjis week but was slapped down by Chancellor George Osborne.
Housebuilders claim the real reason for rising propertuy prices and rental values is the sheer lack of available property nad new homes being built.
The sudden and dramatic upturn in activity has led to a 20 per cent surge in bricklayers salaries in the past six months. And there are shortages of bricks and blocks in “hotspots” across the UK, with brick prices tipped to rise 10 per cent.