'In light of recent stock market volatility and levels of returns on savings accounts the current net yield from average UK residential property still seems relatively attractive,' said Richard Donnell of the firm's research department, 'even though the downward trend looks set to continue during 2001.'

The average net yield, after allowing for ongoing management and maintenance costs, currently stands at 6.5%, a level close to current rates of finance for investment mortgages. Where investors look set to score is on capital growth rather than income streams as in the medium term rises in residential values look set to continue particularly as housing in certain parts of the country is still very affordable. Cheaper levels of long-term finance will also keep the upward pressure on values.

Central London is now looking less attractive because capital values have soared over the last few years. The average yield now stands at 6.5% which after management and maintenance cuts the net yield on central London property to a mere 4%, well below current rates of finance.