Ten Years Of Buy-To-Let

By Neil Faulkner | 12 July 2006

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In this podcast, (where my colleague David Kuo, the presenter, was so determined to talk over me that the Chief Fool told me that next time I should knock over my microphone and storm out in a huff. Not that I'm bitter! sulk) we talked with Saul, our commercial director and a buy-to-let 'property magnate'. We discussed the ins-and-outs of buy-to-let investing and then hypothesised: would David or I be interested in running a property portfolio? There was a two-man chorus of 'No!'. We were simply put off by the time and effort involved in such a project.

However, the rewards are clearly there to be made. Since the first buy-to-let mortgage designed for individual investors came out ten years ago this month, the data collected has been positive and remains this way still.

The Association of Residential Letting Agents (ARLA) reported recently that the rate of return on property investments over five years is 11% for properties bought outright and 23% for properties bought with mortgages. Landlords remain positive about their future prospects as well. 62% want to buy a further property in the next 12 months and 87% said that they wouldn't sell if house prices fell. As far as I can see, there are five reasons for this optimism:

• Firstly, there is rental demand. Over 90% of the ARLA respondents reported that rental demand is the same or stronger than it was six months ago.
  
  
• Another probable reason is much better interest rates. When the first buy-to-let mortgages came out they were expensive, at perhaps four or five percentage points higher than the Bank of England base rate. Now you can get them for little more than 'ordinary' mortgages, at around the base rate.
  
  
• The third factor is a boundless optimism about the direction of property prices. Many people seems to think that the property market is immune to downward periods. Uh oh!
  
  
• Fortunately, most property investors seem mature and quite savvy. They're in it for five to twenty years, not for a quick buck.
  
  
• With this long-term view in mind, they're more willing to take out loans with smaller deposits of around 10%, which compares with about 25% ten years ago.

So, if you're willing to put in the effort, it seems that buy-to-let still is a good idea. For more ideas, why not listen to the podcast (which I didn't get to speak in!).

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