Buy to Let in 2007 – A Good Time to Invest?

During the past decade, the UK has been going through a strong property boom fuelled by low interest rates and a strong demand for property and property investment. Low interest rates and dramatic improvements in mortgage products have seen many people become property investors hoping to capitalise in the rapid growth of the property market. Many people have seen huge success mainly due to the rapid increase in house prices and now more people than ever are looking to invest in property.

According to a report by Mintel, there are 900,000 landlords in the UK and a further 900,000 have expressed an interest in buying at least one investment property by 2010, even though property prices are still rapidly increasing. According to this report, they believe the property buy-to-let boom has only just begun. With 1 in 10 people privately letting a property, it has been predicted that by 2017 this figure should double.

Many people have seen their friends or family make fortunes from property and they want to do the same. They see property as a sure fire bet to wealth and more and more people are chancing there arms at becoming property investors.

However, I feel that any new investors entering the property market will need to be very careful. With property prices still rising fast especially in London and the Southeast, the Bank of England have said that they want to slow the rapid growth in the property market and they intend to raise interest rates until a cooling off happens.

This means that the cost of borrowing will be increasing and with poor rental yields of around 5% being seen in many areas, many landlords will find that the rent will simply not cover their mortgages.

If you are thinking about becoming a landlord, you will have to pick your locations and properties with great care. Only pick areas that have a high rental demand, carefully match properties to the right tenants and try and buy properties as cheaply as you can by possibly buying run down properties and refurbishing them to add value. You will also need to be very selective with the properties you choose to buy.

You should only buy property on the basis that all your figures stack up, be as sure as you can that your rent will cover your mortgage and costs and that your property will achieve good occupancy rates.

If you are struggling to find suitable locations to invest in, perhaps you should turn your attention to find up and coming new areas. The general strategy of investing in property is to ‘buy low’ and ‘sell high’ so perhaps focus on areas of regeneration where property is fairly cheap, and look to get in early to capitalise on increasing demand and hopefully, rising property prices.

If this is a strategy you want to take, your best bet is to focus on areas further north such as the northwest or northeast where property is generally cheaper. To identify these areas, look for improved transport links, new businesses and signs of new development and a general regeneration scheme.

It might also be worth targeting a specific niche in the rental market such as offering student lets or possibly targeting the professional sharers market. These two areas of the rental market are generally very steady because year on year, students will need student accommodation when they go to university and young professional and graduates will generally head to the cities in search of good jobs and these people enjoy sharing with like minded individuals.

You may also need to think outside of the box when considering what property to buy. Most people seem intent on buying off-plan property (normally apartments) with other investors. Although you can make good returns this way, many of these investments simply do not stack up. So my advice is to think outside of the box and look at a whole array of properties such as small medium or even large houses and see if these properties are more profitable than new build apartments.

Perhaps look to buy a medium sized 4 bed house and look to offer a house share to young professionals. As always, your choice of property should be based on strong rental demand, and making good returns from the property both in terms of capital growth and rental income.

But what is the future of buy to let in 2007 and beyond? Well with further rises in interest rates in 2007 expected and poorly performing rental yields, investors will have to pick properties very carefully and have a clear investment strategy if they are to make returns on rental income and achieve continued capital growth. Investors should also expect a cooling in property price growth associated with the rising of interest rates and I believe that this will be a good thing.

Generally, when property prices are rising rapidly, demand for property is high with lots of people buying and as a result, rental yields are generally poor.

However, when the property market does begin to cool possibly in the future, rental yields will recover again but until this happens, investors should make sure that their mortgages and costs are being covered by rents and wait until the rental market improves which it will do in time. It might also be worth re-mortgaging and going onto fixed rates if you can still get them as this will means all your costs are fixed which means you can manage your finances more efficiently.

My general advice is that property is still an excellent investment and will always continue to be because there will always be a strong demand for property both to rent and to buy. You just have to know how to manage your properties through the difficult times and the true property professionals do this brilliantly.

So in conclusion, if you are investing or already have property investments, my advice is to have a clear investment strategy, pick your locations wisely, buy the right properties, manage your properties carefully and carefully select your tenant market. This is the key to property investment success in 2007 and beyond.