Landlords enjoyed a 7.6 percent annual return on their investments by the end of December 2009 according to the latest Buy to Let Index from LSL Property Services.

The value of their properties rose 3 percent in the year while rental income after void periods added a further 4.6 percent. This means in 2009, a typical landlord made a return of £12,740. This was a combination of modest capital gains of £4,831 on each property and £7,909 in rental income.

By contrast, in 2008, a typical landlord would have lost 8.8 percent even after allowing for rental income. They lost £23,000 in capital as the property fell in value, and earned £7,900 in rent for the full year, leading to a total loss of £15,100.

David Brown, commercial director of LSL Property Services, said: “Despite the worst recession in living memory, and despite house prices continuing to fall for the first few months of 2009, investment returns in buy to let were very respectable.

The £12,700 the average landlord made on a rented property during the year recouped most of the losses in the housing crash of 2008. Brave landlords who added to their portfolios will be celebrating an excellent year.”

The trend in prices continues to be favourable. Landlords’ properties rose in value by 0.4 percent in December.

By contrast, the average UK rent fell slightly in December, down 0.4 percent to £661 per month. Rents have corrected slightly since September giving up a third of the sharp rent rises in the summer.

However this was largely driven by falling rents in the large London and South East markets, the only two markets to have seen three consecutive months of rent declines since September.

At the end of 2009 rents were 0.2 percent higher than the previous year with yields ending the year at 4.8 percent. They fell from a peak of 5.1 percent in March as the recovery in house prices outstripped growth in rents.

Brown continued: “Rents rebounded in the summer as the housing market recovered and accidental landlords began to sell homes they had been forced to let at rock bottom prices.

“But increases were a little too sharp and landlords have scaled rents back in the last three months, particularly in London and the South East. It’s no coincidence, however, that London and South Eastern house prices are also recovering strongly, more so than many regions. With house prices on the up, some landlords have felt less need to push rental incomes higher.

“But it also reflects the distortion of the stamp duty holiday. Landlords who have bought property to beat the January tax hike will have saved up to £1,750 in stamp duty, dwarfing a few pounds a month lost in slightly lower rent.

“Landlords must not lose sight of rental income when house prices move up, however. Rents should form the foundation of buy to let investment and are key to financing.”

“2010 is likely to be an interesting year for the buy to let market. The proposed introduction of regulation should help filter out unscrupulous mortgage advisers which will be positive for the sector, particularly for inexperienced landlords.

“The downturn has already pushed many of the short-term speculators out of the market too. Buy to let is an essential part of our housing market – we need well capitalised, experienced, professional landlords. With returns rising, they can once again look forward to investing more in the sector to meet our housing needs.”