Overview: There's no such thing as a sure bet in buy to let

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The Independent Online

Little seems to dent the confidence of the buy-to-let investor, not even the wilder forecasts of interest rates hitting 10 per cent.

Little seems to dent the confidence of the buy-to-let investor, not even the wilder forecasts of interest rates hitting 10 per cent. They may well have seen too many false alarms about a collapse in house prices to feel any urgency about selling up, although there are mixed reports on this.

Some agents are seeing more landlords cashing in their investments. Hamptons International for instance finds that the number of rental properties withdrawn in April was 16 per cent higher than the year before, and many agents are having to deal with owners who dither about selling or renting, often changing their minds at the last minute.

The latest survey of the rental market from the RICS (Royal Institution of Chartered Surveyors) shows that just 12 percent of landlords whose tenancies came up for renewal opted to sell-up rather than re-let; up slightly from 11 per cent in October last year, prior to the first interest rate rise. However there seems little doubt that base rates are on the increase, gradual though that may be and there is concern that investors' calculations may be overly influenced by the extraordinary capital growth of the past few years.

Within the last quarter, according to the RICS, 43 per cent of rental property coming onto the market is owned by landlords who are new to the buy-to-let business. In October the figure was 41 per cent. At least 10 per cent of all properties coming on the market are owned by landlords with five or more properties.

The good news for landlords is that in nearly all sectors of the rental market, supply is falling - with the exception of one-bedroom flats - and at the top end of the London market people are chasing for the best houses. Lane Fox finds its stock of family houses down 50 per cent on May last year. Much of this is due to Americans and corporate tenants returning to the market. Landlords who have had to let at a discount are hoping to recoup some of that lost income with higher rents.

But over the long term, which is the view all investors are urged to take, there are signs that renting is returning to favour. A healthy sign for the housing market as a whole is that in half of London's boroughs it is now cheaper to rent than buy. In the most expensive area, Kensington and Chelsea, that amounts to 41 per cent cheaper, with Lambeth at the bottom at 10 per cent, according to research from FPDSavills. Hillingdon tops the list of 10 boroughs where it is cheaper to buy at 32 per cent.

Ronnie Green, managing director of John D Wood & Co Lettings, says that first-time buyers, many of whom have been pushed out by those buying to let, are choosing to wait before burdening themselves with a mortgage, while young professionals enjoy the flexibility of renting even if they can afford to buy. Divorce is another factor forcing people to rent .

So would he be investing in the current climate? "I cannot see anyone with cash doing better than bricks and mortar in the long term," Green says. "But too many people confuse gross with net yields and I would suggest that unless they are certain of the rental market the level of gearing should be no more than 50 per cent."

As organisers in Manchester prepare for the first Property Investor Show to be held in the north of England later this month, the rush to buy in areas of lower capital value shows no sign of abating. Some 81 per cent of investors expect the buy-to-let market will grow over the next year. Ronnie Green warns against being tempted by 15 per cent yields. "Beware of rental guarantees. Make absolutely sure that they are sustainable. People should do their own homework."

The time when everyone starts piling into a sure bet, is the time to take stock.