Landlords are enjoying changes in the buy to let market, with rising rents, rising house prices and falling arrears, according to the latest Buy to Let Index from LSL Property Services plc.

The index states that the average rent in the UK rose 0.1percent in March to £659 per month, increasing for the second consecutive month, an increase of 1.5 percent compared to a year ago. But rents remain 4.0 percent, or £29 per month, lower than their peak level in August 2008.

Yields on buy to let property dropped slightly to 4.7 percent from 4.8 percent in February as house prices continued to rise, outpacing increases in rents.

David Brown, commercial director of LSL Property Services plc said: “We've seen the beginnings of the seasonal spring surge, combined with the continued recovery of the private rental sector. The increased tenant demand is continuing to push up rents.

“Despite the doubling of the stamp-duty threshold, mortgage finance is still unaffordable for thousands of first-timers, and we don't expect demand for rental properties to drop away significantly in the next few months.”

“We're not just seeing an improving picture for landlords – but tenants too. The performance of arrears was a surprise story of the recession, and they have exceeded expectations again in the first quarter of 2010.

“The economy is recovering, albeit ponderously. Fewer tenants are losing their jobs, or seeing pay-cuts and falling behind with their rent. The improved situation with tenant arrears has meant that although house prices have risen, when void periods and arrears are considered, the effective yields landlords receive on property investment have actually snicked-up in the past month in real terms.”

The LSL index also claims that total return from investing in buy to let over the last 12 months reached 13.3 percent in March, with the average landlord making a total return of £20,580 in the past year. Total annual returns have now risen for 13 consecutive months.

A landlord investing today can expect to make an annual return of 10.7 percent over the next 12 months. This is equivalent to £17,964 on a typical property.

Brown added: “Landlords have had a torrid time over the past two years, with plunging house prices and rents.

But as the housing market continues its recovery, landlords who weathered the economic storm, and landlords who took advantage of the falling house prices and invested a year ago are reaping the benefits of a revitalised buy to let market. Returns are rising, rents are on the up, and properties are growing in value.

“Property is an increasingly sound investment proposition, but only if landlords really do their homework and balance the potential rental income with the long-term capital gains a property may accrue. A short-term strategy is risky, and property investment must be based on the long-term fundamentals of yield and tenant demand.”