The average buy-to-let return increased to 16.3 per cent in 2007, according to a new survey.

Research from Birmingham Midshires showed the typical gross return for a buy-to-let investor, exclusive of fees and mortgage interest costs, was 2.8 per cent higher than it had been in 2006.

Rental values also rose by 13.1 per cent last year.

“Buy-to-let house price growth has edged higher over the past year. Rents continue to rise across the country, boosting returns,” said Tim Hague, managing director at mortgage lenders BM Solutions.

“The fundamentals underpinning the buy-to-let sector are sound. They include strong demand from higher immigration levels and housing affordability concerns for first-time buyers. However, we expect house price growth to be more subdued in 2008, largely reflecting the impact of higher interest rates.”

The average price of a buy-to-let property in 2007 was £154,795, an increase of 10.9 per cent on 2006.