Buy-to-let: What all landlords need to know

They're no longer easy money, but rental homes can be good earners. Norman Miller has the essential tips for beginners
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The Independent Online

For many years, buy-to-let seemed to be a dream investment – and for many people, it was. The deal was simple: get a cheap mortgage deal, buy a place anywhere you like from Clapham to Cleethorpes, select one of the many grateful tenants, and while you let the rent roll in you could watch capital values grow by 20 per cent a year.

But since the end of last year the equation has not been quite so simple. Interest rate rises have eaten into those easy profits, and warnings are being sounded that property prices may not carry on rising fast for much longer. Has the bubble burst? Well, no.

Eager borrowers took out 171,800 new buy-to-let mortgages in the first half of 2007, a rise of 14 per cent on the second half of last year. Buy-to-let lending now accounts for 10 per cent of mortgages, compared to just 3 per cent five years ago. Clearly, people still think they can make buy-to-let work, but these days it's not so easy. If you're tempted, here are some pointers to how you can still make it work.

The basics still apply

In the past all you had to do was stick to the basic rules. Now you need to do further research before you rush in, but don't lose sight of the essential do's and don'ts. You still need to pick a property with good transport links and access to shops and amenities. A neutral decor is still a winner, and proper budgeting still includes getting good mortgage advice, allowing for service charges, buildings insurance, estate agent's management costs and tenant-finding fees, and still having some money in the bank for those times when the property is left empty.

Location, location, location

With the outlook for house-price rises looking less rosy than it did a couple of years ago, it's vital to buy in the right area. If you're looking online, you may encounter figures of average rental yields (the money you make from rent once the mortgage is paid) for a certain region. But as Tony Booth, of investment company Property Secrets points out, remember that within the average, you can encounter significant variations. While an average figure may be 5 per cent, a particular town may offer an unexpectedly higher return due to a high student population or just even because it's considered unfashionable and property is therefore cheap to buy.

Stand out from the crowd

"There's no point investing where large numbers of people have already invested – by that time, it's too late," says Mark Dalton, a landlord who has a portfolio of nearly 50 properties in and around Luton. He researched the town and found potential that no one had yet trumpeted – there were fast trains to London and improving infrastructure. "Don't follow the herd," says Dalton.

Look out for upcoming improvements

Keep tuned in for news of developments likely to boost an area. Examples include the impending fast train links to London that have put Medway towns in the buy-to-let spotlight, or the BBC's forthcoming shift of staff from London to Salford.

Buy the right kind of property

Terraced houses are the soundest bet for yields, according to the latest figures from Birmingham Midshires. They tick boxes for the widest range of possible tenants, including couples, professional sharers and young families. The broad appeal of terraces also helps boost capital gains, making them the property of choice for a wide range of potential buyers when you come to sell. You may well also be able to add to the value with building work – you can't convert an attic or extend a flat.

If houses are out of your reach, a two-bedroom flat is better than a one-bed, for similar reasons.

Beware the new-build no-brainer

Developers often package new builds with "incentives" for investors, such as mortgage subsidies or guaranteed rents payable for a year or two. These were great in a fast-rising market where you could buy off-plan and sell 18 months later for a tidy profit. With prices stalling and even falling, be wary. Achievable rents may drop significantly once an artificial guarantee ends, leaving you with a loss-making property that you can't even offload at a decent profit, especially if there's a glut of similar properties from other landlords who have been caught out too.

Beware, too, of the premium that has to be built into prices for new builds, to give the developers and marketers a profit. Another negative factor is the lack of character that marks out many new developments, which is likely to affect future re-sale value.

Play the long game

"In the short term, buy-to-let should not be considered as a way to make money," warns Tim Le Blanc-Smith, of London agents John D Wood. But long-term prospects are positive. Interest rates remain low compared to the double-digit rates that ended the 1980s property boom. An increasing student population, rising immigration and first-time buyers priced out of the market should also buoy rental demand in the short term. The ongoing housing shortage should underpin longer-term capital appreciation. So, buy-to-let can still be a dream investment. Just treat it as a waking dream.

Britain's new buy-to-let hotspots


Kirkcaldy looks a good bet to benefit from the outward flow of Edinburgh's sky-high prices, as well as, perhaps, the kudos of being the new Prime Minister's constituency. The town has a four-mile shoreline and good transport links. Frequent trains run to Edinburgh in 35 minutes. St Andrews and the fishing villages of Fife's East Neuk are picturesque neighbours.


The move of 1,800 BBC staff to Salford Quays in about three years' time should see Salford cease to be Manchester's poor relation. As well as Salford Quays, the bohemian suburb of Chorlton is being touted as a " media village", as is the redeveloped New East Manchester area. Media dahlings may also be attracted to riverside developments such as Greengate, where 400 homes are to be built with steps down to a riverside "beach". Flats at Salford Quays itself go for £140,000-170,000, though loft apartments are selling for around £220,000.

Forest Hill, London

One of the highest points in the city, Forest Hill has trains to London Bridge and Victoria. When the East London Line extension opens in 2010, it will be on the Tube network. One-bed conversions cost from £160,000, or £200,000 for an extra bedroom. Three-bed maisonettes sell for £250,000 in the less tree-lined of the streets. Townhouses fetch around £350,000, while Victorian houses sell for £450,000-£500,000.

North Kent

The impending fast train links to London due to start in 2009 are transforming the prospects of the Medway towns, cutting train times from places like Gravesend from 50 to 20 minutes. Chatham already boasts a decent train link to London (40 minutes), its average price of £160,000 is considerably less than the Kent average of £230,000.


West Sussex's largest town offers fast train links to London, good road links plus proximity to Gatwick. Blue-chip companies support a strong local economy. Victorian and Edwardian housing is complemented by clusters of Georgian gems. Town-centre flats go for upwards of £130,000, while the tree-lined streets of West Worthing offer Victorian semis from £250,000. Forthcoming developments include Tevill Gate, featuring 250 new homes plus shops and a cinema. Regeneration plans should underpin long-term capital growth.


The Rhondda was blighted by industrial detritus and high unemployment following the demise of its coal industries but change has come. The valley rail line to Treherbert gives many villages good train links to Cardiff, with the bonus of rolling hills and valleys. While 2006 saw the village of Ferndale picked out as the cheapest place in Britain, it's remarkably plea sant with a stock of sturdy 19th-century miners' cottages ideal for Cardiff commuters or downsizers. Frequent buses run the five miles to Porth for trains to Cardiff Central, and from there London is two hours. Houses selling for £35,000 two years ago are now priced nearly twice that.