There are no fast bucks in bricks and mortar

The boom may be over, but there are still rewards for patient investors, says Laura Brady

Whatever happened to buy-to-let? It used to be a hot topic at dinner parties but now conversation takes place in a nervous whisper.

Whatever happened to buy-to-let? It used to be a hot topic at dinner parties but now conversation takes place in a nervous whisper.

The vogue for buying properties specifically to rent out was rooted in the recent housing boom. Fast-rising prices encouraged homeowners to remortgage, release equity and invest in a second property, then a third and so on.

The combination of soaring prices and strong rent yields propelled healthy investment returns, but these have levelled off during the price slowdown and dampened enthusiasm among potential new investors.

"If you are looking for a quick buck, the boom is over," says Jonathan Moore, marketing manager at buy-to-let broker Mortgages for Business. "This seems to have put some people off: we have seen business shift away from small investors towards the professional landlords who have 10 properties or more."

Robert Jordan, chairman of Jordan's Residential Lettings, reports a similar pattern. "Plenty of existing landlords are coming through the door asking us to manage their property, but there has been a sharp downturn in new landlords," he says.

"This is because they are waiting to see where prices go. After all, why not wait until next month to buy if you can save a few thousand pounds?"

The Association of Residential Letting Agents (Arla) claims investors are too focused on the short term. "This is not a market for speculators," says spokes- man Malcolm Harrison. "You would be foolish to plan to enter the market for less than five years. Most successful landlords have a view of being in it for between 16 and 17 years."

This long-term view explains why existing investors are unfazed by the cooling housing market. A survey from the National Landlords Association (NLA) last month found their top concerns were regulation and unreliable tenants. "Interest rates and house prices hardly appeared on the radar," says NLA chairman David Salusbury.

Similarly, even though landlords were forced to subsidise mortgage repayments on 17 per cent of all investment properties last year, some 61 per cent said capital growth was the most important aspect of their investment, according to broker Savills Private Finance.

For those wondering whether to invest in 2005, there is at least a greater choice of buy-to-let mortgages, says Mr Moore.

Most buy-to-let lenders insist that the rent on the property amounts to a minimum of 130 per cent of the loan's interest repayments - usually calculated on the lender's standard variable rate, he adds. "But as house prices have risen and rents have not, this has become increasingly difficult. That's why some now only require 100 per cent of the rent to meet the interest repayments."

Other lenders are lowering the rates payable on buy-to-let loans, which are traditionally higher than on residential ones.

Mortgages for Business is offering a lifetime tracker buy-to-let loan at base rate (currently 4.75 per cent) plus 1.14 per cent. The rental cover is 130 per cent and the deal carries a £495 arrangement fee.

If you do your homework, there might even be opportunities for a relatively short-term capital gain, says Mr Moore. "The trick is to look for areas that are being regenerated or seeing new travel links built."

Martina Johnson bought her first flat in Finsbury Park, north London, for £81,000 in 1995. Two years ago she decided she wanted more space, but as its price had more than doubled, she opted to release some equity and invest in buy-to-let.

She bought a two-bed flat in Kentish Town where she now lives, and rents out her old home. However, she was without tenants for three months last year and has since been forced to reduce the monthly rent to £810 from £910.

"But none of this matters. The flat is basically my pension."