Has The Buy To Let Boom Burst?
There is no doubt that the buy-to-let boom has been a contributing factor to soaring house prices in the past couple of decades. But will buy-to-let still provide investors with good returns? So is it too late for buy-to-let? In a word, no, but then you might well expect a mortgage company to say that. Let's try to convince you.Back in autumn 2002, a number of financial commentators were predicting that the buy-to-let bubble was close to bursting.Some four years on and the market continues to prosper, with growth showing little sign of abating and, with a raft of new lenders still entering the arena, the prospects for profitable investment are positive to say the least.
Are people still investing?
The Council of Mortgage Lenders (CML), the body that represents the vast majority of the market, reported a 15% growth in buy-to-let in 2005 but many commentators argued that this was on the back of Gordon Brown’s plans to allow residential investment property into pensions, attracting large levels of tax relief along the way. When the Chancellor reversed this decision at the last minute, the end of the market was predicted by many, yet the opposite appears to have occurred.
Is the rental market strong?
Transactions are up and rental demands remain high - the savvy landlord who does his or her research well will see the rewards. The types of areas to focus on are up-and-coming towns, cities with heavy student populations and ones with good transport links.
What are the prospects for house prices?
However, at the heart of buy-to-let success is the future prospects for the housing market. We see little reason for a downturn in house price growth with all the economic factors pointing toward the steady increases witnessed over the past two or so years.In fact, the CML revised its forecast for house price growth from 2% at the start of the year to a more bullish 7% just recently, which can only be good news for the property investor.Although this and other factors represent good prospects for the buy-to-let market landlords they should still protect themselves from the negative effects of high gearing (gearing is another way of saying borrowing) by ensuring they are getting the maximum return from their rental properties.Taking an afternoon to review existing arrangements could prove incredibly beneficial. Increasing competition between lenders in the buy-to-let market will often allow investors to more than make up for the current squeeze in yields.
Indeed, the type of innovation normally associated with the traditional mortgage has been applied to the buy-to-let arena with success recently.
Buy-to-let mortgages
The mortgage market for landlords, or potential landlords, is becoming more and more competitive, which can only work in the property investor's favour. As a result, there are some attractive buy-to-let mortgage deals out there.
We would recommend that all UK landlords who haven’t recently reviewed their existing buy-to-let mortgages do so in order to ensure they get the maximum net yield on their properties.
Summary
Landlords are continuing to find buy-to-let attractive and the sector continues to offer good prospects over the long term, but they do need to continue to take a realistic view of the risks, as well as the rewards.We strongly recommend that, just like most other types of investment, you should take a long-term view of the market and approach it as a long-term commitment. Nearly every form of investment is prone to fluctuations.With property investment, taking a long-term view enables investors to benefit fully from any capital appreciation, with their return on the capital invested enhanced by the effect of gearing, without worrying too much about short-term fluctuations
