13 September 2007 – Article by Simon Wigglesworth (for the BTL Solutions website - http://www.btl-solutions.co.uk.) Ravenstone Financial Management LTD.
"Over the years, many people have become disillusioned with traditional pension plans based on stock market investment returns, and have turned to 'buy-to-let' property investment as a future pension fund. However, with interest rates rising and constant speculation that the “property bubble” will eventually burst, many investors are asking themselves whether they should still be investing in residential property. Although I would never suggest that anyone ignores investment vehicles such as ISAs and Pensions due to the significant tax benefits and security that they can offer, there are still many reasons to invest in property - if done correctly. The “Global Credit Crisis” as it is being called, brought about by a huge loss in confidence in the US subprime lending market, has since had an effect on this side of the Atlantic. Victoria Mortgages is the first UK subprime lender to go into administration and many other British mortgage companies are set to quit the more risky subprime market amid fears that the sector could soon mirror the US as borrowers at the lower end of the market struggle to make payments. This reduced accessibility to lending, a slowing housing market and higher interest rates have kept many would-be home buyers and landlords in the rental sector, with many adopting a wait and see approach. The Royal Institution of Chartered Surveyors (RICS) have recently issued a survey showing surprisingly strong figures for the buy-to-let market, with demand pushing rents up at their fastest pace on record in the three months to July. The survey found that most surveyors expected the trend to continue during the current quarter. “This current economic uncertainty has therefore created an ideal platform for buy-to-let investors to cash in on rising rental levels” said RICS spokesman Jeremy Leaf. Gone are the days, however, when anybody can buy any property and make gains of 10-15% per year without thinking. There are still some geographical pockets showing double digit returns, however, the UK average growth rate is expected to slow to single figures over the coming years. The expected rise in rental incomes, however, should partly offset any slowing of capital growth on the property. This is why it is becoming more and more important to seek professional advice on where to buy, the type of property to buy and the expected rental yield in order to maximise your profitability in both capital growth and rental income. Single digit returns, however, are still worth taking if the property is ‘geared’ correctly. With growth being determined on the value of the property, not the size of deposit, you will be hard pushed to invest that deposit elsewhere and get the same returns without any gearing. Raising a mortgage on a property is one of the easiest ways to gear your investments. At the same time as subprime products being forced out of the market, there are now more than 40 different mortgage lenders competing in the buy-to-let market. Profit margins are being squeezed within the 'normal' residential mortgage arena and lenders are now looking at the more profitable buy-to-let sector to compete in. Lenders no longer view income-producing residential properties as a commercial proposition. With so many different types of buy-to-let schemes available it is important to get good quality advice. All the different lenders have differing criteria and unless you are an investment mortgage expert it is difficult to find the most suitable scheme for your individual requirements.
In Summary, rental incomes are set to rise, property values are still increasing and buy-to-let mortgages are becoming more competitive than ever. The Buy-to-let sector is still growing rapidly and there are plenty of opportunities still available. Good quality advice, however, is vital to make sure you succeed."
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