Is 2013 the right year to jump on the buy to let band wagon?

House Prices

Four in a row IIWith interest rates on savings accounts at all-time lows, house prices down by 20% from their peak and rents rising, it is little wonder that more and more people are investing in residential property.

New figures from the Council of Mortgage Lenders (CML) show that there are now 1.5 million buy to let investors in the UK so we thought we’d look at a few reasons why now might be the right time to jump on the buy to let band wagon and dip your toe into the property market, or indeed to add to an existing portfolio.

Low interest rates

The low interest rate environment, fuelled by the Funding for Lending Scheme, is giving the buy to let market a double boost.

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Firstly, interest rates on savings accounts, which were already low, have fallen further over recent months, meaning many people are looking for alternative ways of investing and creating an income.

Secondly, buy to let mortgage rates have fallen, making it cheaper than ever to raise finance to fund a purchase and increasing the net yield after costs.

Low house prices

According to the Halifax, the average house price in the UK has dropped from £192,651 at the start of 2007 to £161,367 at the end of 2012.

Conversely other asset classes, particularly shares, gilts and corporate bonds have seen strong returns over the past year or so, leading some experts to predict they may fall in value over the short term.

Most successful investors swear by the golden rule of ‘buy low and sell high’, on that basis residential property is definitely worth considering right now, especially if you believe house prices have stopped falling.

Rising inflation

Although by historical standards inflation is relatively low, savings rates are so poor that it is not possible for a tax-payer to get a real return, that’s to say above inflation, on their money.

There are also predictions, including from the Bank of England, that inflation will rise further before it starts to fall.

For many people keeping significant sums of capital in savings account is simply a guaranteed way of losing money in real terms, which is why some savers are looking to buy to let, as well as other types of investment, as an alternative.

Problems for first time buyers

The credit crunch, subsequent tightening of mortgage lending criteria and the disappearance of higher loan to value mortgage deals, has caused significant problems for first time buyers wanting to get onto the housing ladder.

The issues facing first time buyers though have been beneficial to buy to let investors, who are typically competing to buy the same property. Furthermore unable to get on the housing ladder, first time buyers have been forced into rented accommodation, creating a larger supply of tenants, which has pushed up rental prices and increased the yield for landlords.

A few notes of caution

Although there are many reasons why now might be the right time to consider buy to let, it isn’t all plain sailing.

Buy to let investors should take care to buy the right property. Avoiding buy to let ghettos is hugely important; it’s essential to buy a property which will be easy to let and then equally attractive to investors and owner occupiers when the time comes to sell.

Remember too that buy to let investing probably requires more input that almost any other forms of investment. Even if you use a letting agent there always matters which require your attention, from insurance, to the annual safety checks, maintenance issues to problem tenants; this is an investment which requires commitment, time and often cash if you are going to make it work.

Finally, although many people are calling the bottom of the property market and the main house price surveys are now regularly showing small price rises, it is still possible that we could see further falls, especially if interest rates rise, which could also push up your costs at the same time as reducing the value of your investment.

Next steps

If you can cope with the downsides of buy to let investing, 2013, with low interest rates, house prices down on previous highs and a seemingly ready supply of tenants, probably represents a very attractive time to consider adding a buy to let property to your existing investments.

If you would like to talk discuss buy to let investment or buy to let mortgages in more detail our mortgage adviser, Linda Wood, is here to help you. You can call Linda today on 0115 933 8433, alternatively enquire online or email

Your property may be repossessed if you do not keep up repayments on your mortgage.

For providing mortgage advice we will charge an application fee of £300 and we may also be paid a fee from the lender, any fee paid by the lender will be disclosed to you. Alternatively we will charge an arrangement fee of 0.5% of the loan and refund to you any payment received by us from the lender.