London housing
London rents are rising and so are house prices in the capital, handing landlords a £38,000 annual gain Reuters

London's landlords are raking in an average of more than £38,000 in annual returns from rising rental income and the capital gain on spiralling house prices in the city, more than double that of the whole of England and Wales.

This takes London's landlords to a total annual average return of 14.6% on their investment in January 2014, up from 11.4% the year before. Across England and Wales the total yield is £15,000, a return of 8.9% on their investment which is up from 5.7% the previous year.

That's according to LSL Property Services, the owner of the UK's largest network of estate agents, including the Your Move brand.

Rents for England and Wales average £742 a month, up 1.4% on the year before. This represents 42% of the net monthly income of an individual earning the median salary or £27,000 a year.

"Rents are now rising more gradually on an annual basis, thanks to the efforts of landlords to expand availability of tenancies," said David Brown, commercial director of LSL Property Services.

"However, there still remains a dire shortage of housing in the UK. Powerful incentives for those with the ability to make more homes available are important in easing some of the short-term strain for tenants.

"But rents will not fall in real terms for very long while there remains such a severe mismatch between the building of new homes and the number of households looking for somewhere to live."

House prices have been driven up by higher demand putting additional pressure on a tight supply. In turn this pushes up rents as landlords pass on the higher costs of servicing larger mortgages.

Housing demand is being fuelled in part by the Help to Buy scheme, a government initiative to make mortgages cheaper and easier to access.

House building has picked up pace as demand rises. The volume of new homes registered with the National House Building Council (NHBC) hit 133,670 in 2013, up 28% on the year before, the most since 2007.

But this is still well below government estimates on what is needed for supply to match demand – 290,500 a year until 2030.

Cuts to housing benefit have also put pressure on many households, as have falling wages. Pay is growing more slowly than prices, meaning a real terms decline.