Recent reports suggest buy to let investments are once again increasing in popularity as landlords purchased 20% more property last year, tempted back by cheaper house prices and higher rents. However, The Landlord Syndicate, a network of companies providing a complete and free support centre for landlords, is urging new and existing landlords to take a more cautious approach this time, focusing on affordability, location, and commitment in order to avoid past mistakes.
"Before the recession, rising house prices fuelled investors, who were really speculators, to buy 'discounted' flats," explains Simon Thompson, Chairman of The Landlord Syndicate. "The resulting house price crash left many of them holding property that would never pay for itself by rents because too many similar properties were grouped in a development, pushing down yields and prices."
There has been much debate on whether capital appreciation or rental yields are more significant when investing in property. Whilst any new landlord will look for security on their savings, according to The Landlord Syndicate, investing for capital appreciation is not the market driver, it's holding on long term for yields that is key.
"For the foreseeable future, capital growth will be negligible and hence rental yields are crucial, demonstrated by the fact that lenders view rental yields more critically than in the past," adds Thompson.
In London, there are specific areas where the yields versus capital growth debate are strongest. Robert Nichols, Operations Director at lettings agent Edmund Cude, explains: "In London yields are highest in East London, where 7% is achievable. Yields as low as 3.7% are common in central London, but capital growth has historically been stronger in these areas."
However, this debate aside, according to The Landlord Syndicate buy to let in the next 10 years will be increasingly regulated with more laws and rules to consider such as Tenancy Deposit Protection.
So whilst the boom may be back, many inexperienced landlords or would be investors need to understand the sector more than they did in the 90's/2000's and seek as much help and advice as possible from their agent.