Buy-to-let for your retirement

The buy-to-let market still offers investment opportunities for new buyers, but property investment is just not a good way to make a quick buck.

That’s the view of brokers and estate agents, despite new reports showing that we’re currently seeing a resurgence in the market.

According to the Mortgage Trust’s latest forecast, 58 per cent of buy-to-let mortgage advisers expect rental incomes to increase over the next three months, and 70 per cent reckon that property values will also rise.

The views follow recent figures from the Council of Mortgage Lenders (CML) that show buy-to-let lenders advanced a record 130,400 loans in the second half of last year, an increase of 40 per cent over the previous six months.

The CML’s director general Michael Coogan says: “Residential property remains a popular investment, and this is set to continue.”

Additional findings from the Royal Institution of Chartered Surveyors (RICS) show the biggest increase in tenant demand in four and half years, with 27 per cent more surveyors reporting a rise in new lets.

RICS spokesman Jeremy Leaf says: “The lettings market is hotting up. Buy-to-let investors are active once again.”

All this might spell good news for established investors with a handful of rental properties already in their portfolios. But where does it leave first-time buy-to-let investors?

According to Kamran Mahmood, director of London-based MINC Property Enterprises, there are still opportunities, although there are fewer of them now than there were three years ago.

“ The best time to buy in recent years was from 1997 to 2002,” he says: “Back then, a monkey could have made money out of property. Now, it’s likely that long-term investors will make money, but it’s not a way to make a fast buck.”

Still a sound investment?

Soaring property prices in the last ten years, coupled with poorer stock market returns, mean that we’ve become used to thinking of residential property as a sound investment.

However, it’s not necessarily as easy as many people think. Figures from Landlord Mortgages, a specialist buy-to-let mortgage adviser, reveal that 33 per cent of potential investors are put off buy-to-let, as they don’t feel they could find a suitable property and are not confident they know enough about the market.

“Researching is critical,” confirms Andrew Oakes, head of intermediary sales at the Cheshire Building Society. “There are still opportunities, but buyers need to be careful, go into it with their eyes open and buy only at the right price.”

When you are deciding where to invest your money, you need to consider all your options, says mortgage adviser John Charcol’s senior technical manager Ray Boulger.

He cites an example: if you have £15,000 to invest and you put it into shares on the stock market, over ten years, realistically, your investment may have risen by 50 per cent, making £7,500.

However, if you use £15,000 as a deposit for a home worth £100,000, getting a mortgage for 85 per cent of the property price, and the value of the home increases by 50 per cent over the same period, you have £50,000.

The key is finding the right property and holding on to it, says Manchester-based Julie Westby, chairman of lettings for the National Association of Estate Agents. Westby, who owns Vale Estates, says: “There are some good opportunities now in regeneration areas of major cities and towns.”

She reckons it’s best to get into these areas as soon as possible, because property prices rise once the developers have taken over and branches of Starbucks and Pizza Express start springing up.

“Get in quickly, even if you have to charge a lower rent to start with. If you then hold on to it for a while, you’re likely to make more on the capital value.”

Timing is crucial when it comes to buy-to-let investments – lenders, mortgage advisers and estate agents all agree that there is money to be made, but only if you stick around.

“The sector still presents a good investment opportunity in the long term. But investors should consider keeping the investment for a minimum of at least five years,” says Gerry Bell, head of marketing at GE Home Lending.

It’s even better if you can hold on to it for longer, adds Westby, who reckons that if you hold out for 10-15 years you “can’t go wrong with property”.