Brass from bricks and mortar

Buying properties to let has suffered its own boom and bust - but now that rents are recovering around the country, is it the right time to start your own property empire?

Over the last eight years, prices in some hot spots have proved property can be a far better investment than shares. In the last five years, the price of one three-bedroom home in west London has shot up to £320,000 from £140,000. This represents 135 per cent growth - outpacing the FTSE 100 index, which rose around 70 per cent in the same period.

Over the last eight years, prices in some hot spots have proved property can be a far better investment than shares. In the last five years, the price of one three-bedroom home in west London has shot up to £320,000 from £140,000. This represents 135 per cent growth - outpacing the FTSE 100 index, which rose around 70 per cent in the same period.

Buying a second house or flat for pure investment purposes is on the increase again, despite concerns that house prices may be stagnating. "We were expecting to see a dip in the buy-to-let market, but there's no sign that is going to happen," says Debbie Staveley, of Bristol & West.

In any case, short-term fluctuations in house prices should not deter property investors, since the whole venture has to be seen as a long-term investment. The hassle and cost of buying and selling, particularly when there are tenants involved, means selling in the short-term would be counterproductive.

The lettings market is now strong, those in the business report, with rental yields on residential property currently hovering at around 7 per cent. Yields had been languishing following a wave of increased supply of property to let, as buy-to-let schemes became popular. But experts say there are several reasons why demand for rented accommodation looks set to stay high.

"There is an increasing acceptability about renting a home," says George Humphreys, of the investment lettings consultancy of Hamptons International. "The historical stigma attached to it is now irrelevant."

Property prices are now so high in many areas that owning a house is simply out of reach for many people. And the high divorce rate has had an effect - the number of single-person households is predicted to grow significantly, with rented homes, in many cases, the only affordable option.

More than 50 mortgage lenders now offer buy-to-let loans, designed specifically for existing or would-be landlords.

So who should consider buying a property to let?

Anyone looking for something to invest in who has enough spare money for a deposit.

But even if you pay professionals to do a lot of the work for you, owning and renting out a flat is a hands-on investment, compared to buying into an investment fund, for example. So you should be someone who is interested in property and prepared to deal with problems that may come up, such as difficulties with tenants and repairs.

"Buying to let is suitable for anyone who's going to research the market," says Ms Staveley. Typically, buying a property in order to get a rental income might be an investment someone would make in the years leading up to retirement, because of the income element. Buying one or more properties can be a good alternative to buying an annuity.

But Bristol & West says it is now seeing more customers taking out buy-to-let mortgages in their 20s and 30s as a long-term investment vehicle.

How much spare capital would I need?

To qualify for a buy-to-let mortgage, lenders demand purchasers put down far higher deposits than would be required for a residential mortgage.

Many will only lend 75 per cent of the property's value. Some lenders are more lenient, only requiring a 15 per cent deposit. These include Future Mortgages, Paragon Mortgages, Verso and Bristol & West.

But apart from the deposit, you should have other savings to fall back on in case you cannot let your flat or have to make unexpectedly expensive repairs at any stage.

What are the risks?

The risks of buying to let should be taken seriously. First, there are the risks of the property market itself - capital values could decrease as could rental yields. Even if, nationally, the market showed steady growth, you could be unlucky enough to be stuck in an area with depressed prices for local reasons.

Your property could need major repairs at some point. Apart from the cost of getting the work done, there would be a loss of rental income. There could be problems letting the flat, leading to it being vacant for some time.

Ms Staveley says if you are unable to meet the payments on your buy-to-let loan, this could have a knock-on effect on your personal mortgage. "We try to advise people they should have money in reserve," she says.

Your once-favoured tenants could fail to pay their rent or even damage the property. But lettings agencies say the risk of problem tenants is far slimmer than generally perceived. "It all comes down to getting your referencing right and making the financial checks," says Mr Humphreys.