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Page 1 of 2 The 'buy to let' boom has been a fairly recent UK phenomenon as people have seen other investments perform badly. Martin Frazer explains why it is still a safe choice for careful investors. With the poor performance of pensions and the uncertainty of the stock market, it is not surprising that people have turned to property thinking it is the safest investment for the future. The 'buy to let' market is still buoyant: in fact, according to the Centre for Economic Business Research the demand for rental property will nearly double in the next ten years as more and more people look at property as a safe and solid long-term investment.Currently the rental sector looks set to increase as first-time buyers are hesitant or unable to commit, but even in the unlikely event of a property crash, such as we saw back in the early 1990s, the rental sector looks secure. In times of economic uncertainty people tend to rent rather than risk losing money in a fluctuating market. That's not to say that 'buy to let' comes without risks. Inexperienced investors need guidance to help them navigate their way through the potential difficulties and should not expect short-term profits. These days most lenders have specific 'buy to let' products. Ask if it is fully portable, allowing the borrower to simply transfer to another property providing the property is to be used for letting purposes. 'Buy to let' mortgages are usually only available up to a loan value of 80 per cent so you'll need to work out what you can afford. Simply the best way of finding out your spending limit is to take expert advice, either face to face in a branch or through an independent mortgage specialist. How does it make you money?It may seem like a simple question but there's a little more to it than meets the eye. In its simplest form the rent you get should more than cover the mortgage repayments, making you money each month while the property itself continues to grow in value.But remember there will be other costs to bear - upkeep and maintenance, letting fees and what happens if you struggle to find a tenant while the property remains empty? All things being equal, however, you can expect to get between 6-10 per cent rental yield per month on your property before tax. Rental yields tend to be higher in the north because of comparatively lower property prices, while yields are lowest in London and the South East. According to one survey many landlords in London found they were operating at a loss last year once the mortgage and other costs had been paid out of rental income. Typically rental income should cover 130 per cent of the interest costs of a 'buy to let' mortgage. This is about the right level to make sure that you are covered for any eventualities and periods when you may not have any tenants in the property. If you are entering the 'buy to let' market for the first time it is important not to overstretch yourself. Get professional advice to make sure that you're prepared for a rainy day. Interest rates may be relatively low now but will you be able to keep up the monthly payments if they rise appreciably? Alternatively, consider a fixed-rate mortgage so you can be sure how much you'll pay out each month. A way to keep the monthly outlay down is to consider an interest-only mortgage with the intention of eventually selling the property to pay off the loan either before or at the end of the mortgage term. Buying the right propertyThis is the area where the unprepared will slip up. Remember, this is not a property that you are going to live in. Character and charm are great when you are looking to find somewhere to buy but overtly quirky properties can be difficult to let out. When people are renting they are looking for convenience, ease and quality. If you are a bit too far away from the local shops or local transport links, or directly under the flight path for Heathrow, you could have problems finding a tenant.Some points to bear in mind:
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