It has been claimed that a “resurgent” buy-to-let market is delivering improved returns as rents rise.

The latest buy-to-let index from LSL Property Services found that tenant arrears hit a new low with ’only’ £227 million rent going unpaid, compared to its peak of £361 million in August 2008.

The average rent in the UK rose 0.1% in March to £659 per month, increasing for the second consecutive month, an increase of 1.5% compared to a year ago. But rents remain 4.0%, or £29 per month, lower than their peak level in August 2008. Yields on buy-to-let property dropped slightly to 4.7% from 4.8% in February as house prices continued to rise, outpacing increases in rents.

Tenant finances were in their best shape in at least two years, with arrears dropping to just 10.1% of all rent. This was a fall from 11.2% at the turn of the year, and is the lowest level since LSL Property Services plc began compiling the figures in 2008.

LSL Property Services plc owns the UK’s largest lettings agent network, including national chains Your Move and Reeds Rains.

David Brown, commercial director of LSL Property Services plc said: “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 total return from investing in buy-to-let over the last 12 months reached 13.3% 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.