Financial Times: Buy-to-let is back but its not a one way street to riches
Sat 13 Apr 2013
After years in the doldrums, buy-to-let is again being hailed as a key tool for investors, against a backdrop of miserable saving rates and uncertainty over pensions. Rising rents are tempting thousands of savers to invest in rental properties and who can blame them> The average easy acccess savings accountnow paysan average of 0.78 per cent. In comparasion, rental income is rising on the back of strong demand from would be buyers buyers struggling to raise big enough deposits to buy their own homes. The average rent in England and Wales rose 3.3 per cent over the past year, according to LSL buy-to-let index. An analysis by Savills for FT Money (see map)shows that investors can find yields of 5.4 per cent in Brighton & Hove to 6.8% per cent in Nottingham and more than 7 per cent in London. However investors looks to buy in the capital should be aware that yields vary signifcantly, says Lucian cook, residental research director at Savills." Gross yields are around 4 per centin prime markets such as City of Westminster and Kensington & Chelsea, increasing to 5.5 per cent in Brent, 6 per cent in redbridge and exceeding 7 per cent in Barking and Dagenham," says Cook.
For those considering buying to let in prime central London, it is worth considering which type of property will let best and lettings at WA Ellis, reports yields have fallen in recent months to about 3.6%. She says more landlords have sold properties because rents have not kept up with the strong capital growth. "One or two bedroom flats are still a safe bet and will typically let within a week" she says. Figures from Savills supports this. Rental values for one bed properties have risen 1.2 per cent over the past year compared to a 1.5 per cent decline for properties with four bedrooms. Professional landlords can often achieve higher yields of investing in specalist area of the market, says David Whittaker of Mortgages for Business, a buy-to-let broker. houses in multiple occupation average annual gross yields of 10.5 per cent while semi-commercial property has average yields of 8.2 per cent. Figures from the council of mortgage lenders show that the number of buy to let mortgages advanced during 2012 reaching its highest level 136,900-in four years up from 121,500 in 2011. Nearly half were for landlords remortgaging. However experts say investors need to do their research carefully before buying a property to let as they are effectively starting a small business. despite the benefits of becoming a landlord its not a one way bet. There have been signs that landlords are struggling to meet mortgage repayments. The total of repossessions in relation to the number of mortgages has reached 0.24 per cent for the first time in the buy to let market. " the knowledge and skills needed to be a landlord are considerable and it is important for anyone considering a move into the buy to let market to be well aware of the law and their responsibilites to tenants," says Chris Norris the head of policy at the National Landlords Association. Investors should also consider the costs involved with managing a property.
"To work out if a particular property will generate a sufficent income to cover all the costs the investor needs to look at the annual net yield, for example, annual rental income minus costs" explains Whittaker. Mortgage rates for landlords are improving but the deposit requirements remain high. For this reason many younger investors tend to struggle to raise the necessary deposits to make a purchase.