Plummeting savings rates mean more people are investing in residential property at auction to gain better returns.

Recent figures released by the Essential Information Group, the recognised authority for data on UK property auctions, reveal that the average rental yield for property bought at auction in January 2009 was 8.47 per cent. In contrast, the average savings rate on an instant access account now stands at 0.17 per cent AER.

This means that someone with £100,000 in the bank currently earns an average of £170 a year gross interest, but if they put the money in property they will enjoy a return of £8,470 a year in rental income. If savings rates and rental yields remained the same then in 5 years the £100,000 in the bank would have grown to £100,852.89. The same sum invested in rental property would have provided the investor with a total income of £42,350, and they would also have benefited from any growth in property values.

David Sandeman managing director of the Essential Information Group said:

"We've recently seen a divergence between and AST yields and savings rates. AST yields have gone north of 8% whilst savings rates have plummeted, and the cost of borrowing to fund an investment property is also coming down. Anyone who derives their income from interest on savings is therefore much better off putting the money into bricks and mortar."

Investors turning to property are taking advantage of the bargains they can snap up at auction. During March 2009 several auction houses reported sale rates of more than 90%. For example, new London auction house mustbesold.com shifted 91% of the catalogue at their auction on 3rd March, and significant numbers of auction houses are achieving sales figures of around 70% or 80%.

Chris Baguley, director of specialist lender Auction Finance Limited said:

"Ongoing rate cuts mean traditional savings accounts are not performing to the level many would like. However, the same cuts also mean long term mortgage finance has become more affordable for those who can secure it. This makes it much easier to service the mortgage repayments on an investment property out of the rental yield. Those with sufficient capital to invest may well be able to pocket a decent proportion of the rental return for themselves, and we're seeing more and more people crowding the auction rooms to put their savings into property.

"Of course another important attraction of the current market is that anyone buying now can look forward to the capital gains that will result when property prices begin to recover, and if predictions that the residential market will reach bottom in 2009 are correct then this is the optimum moment to buy."