Property: Is Now a Good Time to Invest in Buy-to-Let?

Property: Is Now a Good Time to Invest in Buy-to-Let?

At the height of the housing crash of 2008/9, buy-to-let investors were vilified for being partly to blame for the disastrous crash in the property market after contributing to rampant house inflation.

Ever since then, as the UK has struggled with an unprecedented global crisis, the buy-to-let landlord has been a somewhat forlorn figure, remaining quietly in the background, tail firmly between his legs. The entrepreneurial landlord had no relief from the banks and building societies either as the pilloried buy-to-let purchasers were awarded only 5% of mortgages in their darkest hour.

In 2011, however, there are strong signs that the buy-to-let investor is back. Driven by the rising demand for rental properties, empire-building landlords are stepping back into the fray once more, buoyed by news that nearly one in ten of all mortgages given in the first three months of 2011 went to buy-to-let investors, an increase of 42% on the past year. The rates may be substantially below the peak levels of 2006/ 2007 but they are heading in the right direction for anyone wanting to invest in property.

It seems that banks and building societies are opening their doors to buy-to-let investment once more, with the number of mortgage products aimed at those intending to purchase property for rental doubling in the last year. A report by the National Landlords Association also shows that buy-to-let is thriving under current market conditions.

The return of the buy-to-let investor isn’t without criticism, of course. Already they have been blamed by the housing minister for preventing first time buyers from getting on the property ladder. Nationwide recently surprised everyone when it admitted that it would rather give money to a buy-to-let landlord than a first time buyer. Buy-to-let proponents, of course, would argue that without them there simply wouldn’t be enough rental properties to go around.

They could have a point. It is an increased demand for rental properties that has fuelled the current crop of buy-to-let investment in the first place. According to a Bank of England report, the rise in demand is a direct result of difficulties obtaining mortgages as chastened banks and building societies, still bruised from the economic fallout, demand larger deposits from potential buyers. These frustrated potential buyers are now competing for rental properties with those who choose to rent and those who fear a renewed property downturn and have voluntarily delayed buying.

Rents have been rising as a result with the average monthly rent in England and Wales breaking through the £700 mark in June 2011, an annual rent inflation rate of 4.1%. The situation is exacerbated in London, with rent inflation rising at 6.9% year on year, where the average rent is now more than £1,000.

The current economic conditions and demand for rentals couldn’t be more favourable for those in the business of buying to let and those looking to embark upon a buy-to-let venture, provided they have the cash flow and the significant deposits needed to soothe the banks. There are no guarantees that finding tenants will be this easy in the future, of course, but while the going is good and finding tenants isn’t difficult, many would-be landlords seem to have decided that it’s definitely time to get a foothold on the buy-to-let ladder.

The favourable conditions for would be landlords may not be present forever, of course. While house prices are still dropping – new Land Registry figures show prices are falling at their fastest rate since October 2009, with even London falling flat – they can’t be relied upon not to boom again in the future. Likewise, the UK can’t sustain such low interest rates forever.

In the long term, factors such as empty properties, problem tenants and cash flow should be taken into consideration; every buy-to-let venture has to be sustainable and profitable. The demand for rental properties will also inevitably alleviate if the banks ease restrictions on lending.

It remains to be seen just how well buy-to-let investors will fare as the economy begins to judder back into life but it has to be said that, while there is no such thing as a risk free investment, it’s very rare that conditions have looked this promising for the buy-to-let landlord.

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