Its Buy-to-Let Index showed that the average UK rent rose by 0.1% in March to £659 per month, the second consecutive month it has increased and up 1.5% on a year ago.

However, rents remained 4% below the peak reached in August 2008, while yields dropped to 4.7%, 0.1% down on February, as house price increases outpaced the increases in rents.

Nevertheless, tenant finances have improved, with rent arrears dropping to 10.1% of all rent, down from 11.2% at the beginning of the year. This is the lowest level seen by LSL since it began tracking the figures in 2008.

In March, £227.3m of rent was unpaid compared to its peak of £361m in August 2008.

Landlords’ total annual return on BTL also rose for the thirteenth consecutive month, reaching a high of 13.3% in March. The average landlord made a total return of £20,580 over the past year and someone investing today could expect to make an annual return of 10.7% over the next twelve months, equivalent to £17,964 on a typical property.

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David Brown, commercial director of LSL Property Services, 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.”