Buy-to-let market continues to grow

Investors piled into the buy-to-let market in 2003 as the number of specialist landlord mortgages rose by 48% over the year, according to a report released today by the Council of Mortgage Lenders.

Despite improvements in the stock market, a growing number of investors chose to sink their money into property rather than taking a risk on equities.

Lenders remained reasonably strict when it came to lending to prospective landlords. The average lender demanded deposits of around 20% of a property's value and a rental income that covered at least 130% of monthly mortgage repayments. The average value of a buy-to-let mortgage was ?103,500 in the second half of 2003.

The CML urged people to think of the long term and to be cautious before plunging into the rental market. Director general Michael Coogan said inexperienced potential landlords should tread carefully, and take into account rental yields, property price expectations, anticipated void periods when the property cannot be let, the impact of taxation, and maintenance costs, before buying to let.

"For novice landlords this is a complicated mix of factors to consider - people should only enter the buy-to-let sector if they intend to hold their property portfolio for some time," said Mr Coogan, adding that buy-to-let was not a sure way of making a "quick buck".

In January this year, UCB, a subsidiary of Nationwide building society that offers buy-to-let loans, predicted that cooling house prices would dissuade investors from seeing property as a means of making easy profits, and announced its expectation of reduced enthusiasm for property investment as a result.

However, a separate survey published by the Homebuyer Show (which takes place at the ExCel Centre, London, in March) revealed that existing landlords are confident about the prospects of the rental market over the coming year.

More than 70% of landlords asked said they expected house prices to grow, and 30% said they would grow "strongly" in 2004. Meanwhile, more than 70% believe interest rates will rise over the next 12 months. However, only 14% forecast a fall in their gross rental yield. Some 82% of existing landlords plan to buy at least one more property this year, and 27% said they would buy several.