Existing buy-to-let landlords benefited from the flurry of interest in the market ahead of the 3% stamp duty surcharge deadline, the Buy-to-Let Index from Your Move and Reeds Rains suggested.
In March annual buy-to-let returns climbed to 12.3%, up from 10.7% the month before.
The average capital gain contributed £13,494 while rental income made up £8,641.
Adrian Gill, director of lettings agents Your Move and Reeds Rains, said: “In particular, this month’s new stamp duty surplus has driven an extra wedge between those aspiring landlords planning to invest in additional homes to let, and those existing landlords who have already built up their portfolios.
“That difference will not last for long. But by making it more expensive to invest in property, it will hamper the healthy growth of the private rented sector.
“Over the longer-term there will still be a sharpening shortage of homes available, and rents will rise in line with any extra costs – so being a landlord will remain a profitable investment, though tenants will just see unnecessarily higher rents in order to price-in the extra bill for the taxman.”
Average rents rose by 3% year-on-year to reach £791 per month by March 2016. The East Midlands drove the increase, with rents standing 8.5% higher than March last year to reach £613 per month.
In second came the West Midlands with a 6.7% annual rent rise.
Gill added: “Early 2016 records for the Midlands demonstrate the direction of travel this year. Demand for homes in the private rented sector is driven by the flow of jobs and the flux of a generally more mobile workforce looking for a place to live.
“This reflects the strengths of private renting – the opportunity for young independent adults to strike out on their own, or for families to move across the country and earn the best possible livelihood.”