Does Buy To Let Still Add Up

After a series of five interest rate rises in eleven months buy to let lenders are still insisting that buy to let even today is still a sound bet. Should consumers be viewing this as merely feelgood propaganda in a time of uncertainty and should the realisation of the bandwagon having passed by that it may well be too late, or does the great British love affair with property underpin the whole ideal.

The buy to let positives can be typically drawn from lenders commentaries and confirm that the average total return for a buy to let investor was 13.0 per cent over the past year to June 2007, exclusive of fees and mortgage interest costs. The price of the typical buy to let property in the UK increased by 7.3 per cent over the year to June 2007 and house price growth rose slightly over the past year from 6.0 per cent in June 2006.

UK Buy To Let rental yields have fallen marginally over the past year to 5.5 per cent in June 2007 from 5.7 per cent in June 2006. Nationally, the average rent increased to £651 per month in June 2007, compared with £623 per month in June 2006.

By region, total returns for buy to let investors were highest in Northern Ireland over the year to June 2007, followed by Scotland and the South East. The lowest returns seen in the East Midlands. rental voids (the time a property is empty) have fallen for the last nine months and is at 2.8% confirming strong tenant demand. Voids have remained somewhat stable between 2.6 and 3.0 weeks for the majority of the last four years but have declined over the first half of 2006.

Most Investors though simply want to cover costs as their property investments are seen as long-term Buy to let mortgage multiple occupancy. Intimating that an investment into bricks and mortar is the preferred route than into a pension. Accepting that there will always be peaks and troughs and to weather the storm. Landlords who bought ten years ago will no doubt be more comfortable with this scenario than novice landlords. Landlords entering the market today will also be greeted with lender arrangement fees of up to 2.5% of the advance compared with a standard arrangement fee over a year ago of between £300 to £500.

More lenders have also entered the market with relaxed criteria increasing loans to 90% of the property value and reducing rental income cover in some cases to between 100% and 115%. One lender no longer looks at rental income at all and/or earned income, justifying the decision by saying rental income was not a robust test, as many lenders accepted the word of a letting agent on rental achieved.

Tenant deposit protection schemes were launched on Friday 6 April. Under new regulations, all landlords will be required to protect their tenants' deposit using one of three government-authorised schemes alongside two insurance-based schemes which allow landlords to retain the full deposit amount themselves. These schemes require a fee to join, and a premium is payable for each protected deposit. Only any disputed amount is passed to the scheme at the end of the tenancy period. Landlords of properties that house five or more tenants and are at least three storeys high (House of multiple occupancy) from April 6 2006 have to apply for a mandatory license from their local authority and meet a raft of criteria. Including upgrading fire and safety regulations to installing wash basins in every bedroom, this latter criteria was branded as 'daft' by the Council of Mortgage Lenders (CML). The license fee is set by individual councils and will not be uniform. Around 10 per cent of the 2.6m private rented UK households are defined as houses of multiple occupancy.

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