Investors beat rising prices with buy-to-let property acquisitions

It is estimated just over 29,000 landlords entered the buy-to-let market for the first time last year, 19 per cent more than in 2011 and 80 per cent more than in 2010. The figures are based on a survey of brokers and data from the Council of Mortgage Lenders, the trade body. Landlords account for more than one in 10 new mortgages.

Buy-to-let is looking increasingly attractive to cash-rich investors, as opportunities to find returns that beat inflation dwindle. The average rate on a tax-free cash Isa is 1.82 per cent, down from 2.65 per cent a year ago, according to Moneyfacts, the data firm. Retail prices index inflation was 3.3 per cent in March.

Daniel Bourke of Belvoir Lettings in Dunstable, the Lettings Specialist, said: “Assets such as cash or government bonds are producing such poor returns that we are receiving a growing number of enquiries from investors looking to move their investments into property”.

House prices grew 1.9 per cent in February compared with the previous year, while prices in London were up 5.9 per cent, according to figures from the Office for National Statistics, boosting total returns on buy-to-lets.

The total annual return, including rent and capital growth, on a buy-to-let property rose to 6.3% in March, compared with 4.5 per cent in the previous year, according to LSL.

However, investors need to be careful and take into account that buy-to-let can be a lot of work. “It is important that prospective landlords understand that investing in buy-to-let property is a long-term investment — they need to ensure they have done their homework before becoming a landlord.” says Daniel

“With only modest improvements in the UK’s housing supply, rents will keep being forced upwards.”

“Different investors want different things — some are after yield and others are after capital growth. It is rare to find both. Always buy in areas you know and understand.”

Knowing what sort of property to buy is important. One of our previous articles ‘Smaller properties produce the best yields for buy-to-let investors with low budgets’ showed that one or two-bedroom investments provide the highest returns — despite larger properties being able to command much higher rents. Average yields in Dunstable for one-bed properties are 6.68 per cent compared with 4.37 per cent for four-beds.