Is today's property market good or bad for buy to let?

publication date: Jun 30, 2014
 | 
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books
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Is the current market the right time for buy to let?

With the looming freedom of pension investment, many are looking at buy to let as an alternative investment.

But and it’s a very big but! Please make sure if you go down this route, you know exactly what you are doing and understand the principles of buy to let – don’t just do what many have done and buy a property ‘you like’ and then ‘keep your fingers crossed’.

5 things you need to know about property prices and rents:-

  1. Forget the ‘old’ adage ‘property doubles in value every 10 years
    – those days have pretty much gone

  2. On average, according to the Office of National Statistics, over the last 10 years, rental income grew at 1% a year – a lot less than the cost of living which increased by 3% each year

  3. Some properties are being sold less today than they were bought for in 2000

  4. Rental income fell in October 2008 by up to 20%

  5. In all areas bar London, on average since 2005, most property prices have risen less than inflation, meaning 100% cash investment in property could lead you to lose money


Is now a good time to invest in Buy to Let?
At the moment we have a pretty buoyant property market. There are typically more buyers than there are sellers and lots of pent up demand following the lack of people who bought between 2007-2012.


Ideally if you are investing in buy to let you will buy at around a 10% discount – virtually impossible in London and markets where properties are selling for more than the asking price.

So the current market is not a good place on the one hand to buy property as finding a ‘deal’ is incredibly difficult to do. Buying a property at ‘full price’ means you have little leeway if prices fall, especially if your equity drops below 25%.

On the other hand, you make your money in buy to let mostly because you can gear and when prices rise, this can deliver a good return.


For example, if you buy a property for £100,000 with a deposit of £25,000 and the rent covers all the costs, then if the property goes up by 10% to £110,000, then you will gain £10,000 minus sales costs and any tax. This means your return is £10,000 – costs / £25,000 which is around 40%.

And at the moment you can lock in mortgage rates at low levels. So with prices set to rise, albeit in most places slowly, then even though property prices are rising, if you get a good property which will increase in value and lock in a low rate mortgage deal, now might be a good time to invest.

The trick though is to not get carried away. The danger just now is too many people new to buy to let don’t understand what a ‘good deal’ looks like or know how to work out all the costs of a buy to let.

For help analysing a buy to let visit our free Steps to Analysing a Buy to Let checklist and to help you calculate buy to let costs properly, visit Kate’s property calculation page.

For FREE, independent and up to date advice on buy to let, sign up for FREE to Property Checklists. Join now to access our FREE property checklists, including:-




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Which? Property books and one of the UK's top property experts.
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