Buy to let -
still an attractive proposition?
Still an attractive option?
With the equities markets diving for cover at the prospect of war, interest
on deposit accounts only slightly higher than the under-the-mattress rate
and pensions going pear-shaped, investors could easily get the impression
that it’s all gloom and doom out there. But there is one investment
area that is holding up - and that’s the buy-to-let market.
Stories of landlords sitting on empty properties are greatly exaggerated.
Although it is true to say that there have been some problems at top end
of the market, particularly in central London. However, Malcolm Harrison
of the Association of Residential Letting Agents (ARLA) says there have been
cascades of rubbish written about the buy-to-let market and that “the
bubble hasn't burst because there never was a bubble”.
“Everybody thinks of the boom time for buy-to-let between 2000 and 2001
when prices and rents were rising, but that was simply unsustainable,”
says Mr Harrison. “Central London in particular was going skyward but
became depressed because of the dot.com fall out, and was later affected
by 9/11 and job losses in the city.”
Recent figures from ARLA show that while the average size of a buy-to-let
mortgage in prime central London fell sharply by 22.5% during the last three
months of 2002, overall these type of loans rose by 10% in the south of the
country, by 11.3% in the Midlands and 13.8% in Scotland and Northern Ireland.
Picking the right property
Mr Harrison believes that now is a good time to move into the rental market
because whenever house prices start to cool, renting becomes more popular.
To pick an area he says you should draw a circle round an area where you
live and look at places convenient to get to. Never go for a property that
you would like to live in but choose somewhere that would be good for its
purpose. He emphasised the importance of doing your research and talking
to local estate agencies about rental opportunities.
Greg Barnes, assistant partner of estate agency Cluttons, comments that the
days of the high return may have gone but that yields can produce 4.5% to
5% on the investment a year - certainly better that the return on a deposit
account. He believes that you should think of this type of investment as
being long term, over at least five years. He said that property is still
a stable investment and is certainly worth including in your investment
portfolio.
But for safety, he noted that many landlords these days only have a mortgage
covering half of the value of their rental property. Mr Barnes added that
you couldn't really go wrong by buying into university/business towns in
the south west and home countries.
Property company Residential Property Investment Management notes that a
property in good condition in a sought after location near a tube station
in Greater London or other transport will always attract tenants.
The proof of the pudding showing the buy-to-let market is alive and well
comes from the latest figures from the Council of Mortgage Lenders. They
show an increase in lending for buy-to-let mortgages in the second half of
2002 to £6.7 billion from £5.5 billion in the first half. Mortgage
arrears on these types of loans are fairly low with only 0.42% three or more
months in arrears at the end of 2002.
Also, with only about 275,000 buy-to-let mortgages running in the marketplace,
which has a total of 20 million homes, there is plenty of room for more would-be
landlords to move in.
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