Property investment is bucking the economic trend

Landlord Expert
By Landlord Expert August 19, 2012 16:03


There are now more than 1.4 million buy-to-let loans according to the Council of Mortgage Lenders (CML) with director general Paul Smee saying: “The rental sector has grown strongly over the last decade or so, and buy-to-let continues to deliver a wider choice for tenants.”

While latest quarterly figures show that buy-to-let growth slowed slightly – up by a lower 5 per cent in the three months to June – this compares to stagnation in the housing market in general.

And there is no shortage of interest in buy-to-let.

A separate survey from Connells Survey & Valuation found that valuations for buy-to-let properties were up 31 per cent over the last year.

The amount that buy-to-let investors can borrow has remained steady for the past three years at a maximum of 75 per cent of the property value at a time when lending criteria for other mortgages has tightened significantly.

The CML figures follow a survey which found that a growing number are investing in property with a view to living off the asset in later life. Nearly three in 10 now plan to use property to fund part of their retirement income.

It is not surprising considering the rental yield. According to LSL Property Services, the average monthly return from rental properties – that is the income generated from the investment in the buy-to-let – has now risen to 5.4 per cent in England and Wales with an average annual return of £8,884.

This is way more than yield on the average savings account and also higher than the dividend yield of the FTSE100 Index.

However, landlords need to factor in arrears. Although the latest CML figures show that the number of borrowers three months in arrears has fallen in the last quarter, a survey from the National Landlords Association found that 16 per cent of those with only one letting are making a loss on their investment.

In addition, nearly four in 10 are worried about arrears over the coming months.

Tax trap

While the returns on buy-to-let look attractive compared to savings and investments, would-be landlords need to factor in income tax and capital gains tax. While cash and share investments can be held in a tax-free ISA wrapper, landlords do not benefit from this tax break.

Buy-to-let stats

The rental return on houses is now 5.1 per cent and a higher 5.4 per cent for flats.

Although house prices have stagnated, buy-to-let house values rose by 3.6 per cent in the three months to June reflecting demand for these types of properties.

(Source: Association of Residential Letting Agents (ARLA) Q2 Review.)

Landlord Expert
By Landlord Expert August 19, 2012 16:03

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