Buy-to-let becomes more complicated

The past decade has seen phenomenal increases in property prices across the whole of the UK, making buy-to-let an attractive investment option.

Buy-to-let lending in the UK now accounts for 12% of all mortgage advances, compared with just 3% five years ago.

It has never been easier to invest in property, from solid terraced homes to city centre new build apartments, property investment clubs, and even companies offering investment in hotel rooms.

But with so much advice on offer to property investors it can be difficult to make an informed decision before taking the plunge.

With house prices now cooling, and with lenders becoming more wary in the wake of the Northern Rock crisis and the "credit crunch", careful analysis of the costs and potential pitfalls of being a landlord is vital.

Bigger deposits

Anyone making any investment decision should do their research thoroughly, a point that is all the more important when it comes to property.

The property market is awash with new-build city centre flats and it is here that many investors find that they will lose money, both on the capital they have invested and on rental income.

Many lenders now refuse to lend on new-build properties because of this very problem.

Others are demanding much higher deposits of about 25% to ensure there is some equity in the property.

This is a particularly pertinent point for those who choose to enter the buy-to-let market via property investment clubs.

Location and regulations

It is not a good idea to buy a property you have not seen, in an area you do not know, and where you have little idea of rental income and resale values.

To Let signs vie with For Sale signs in many towns and cities

Successful investors should be able to demonstrate a good understanding of the area and the type of tenant they wish to attract.

Our own research shows that investors make the best returns from family homes, with good transport links, good schools, evidence of regeneration and so on.

The old adage "location, location, location" still rings true.

Investors need to be aware that in 2006 the government introduced a new licensing scheme for houses in multiple occupancy, making the property and landlord adhere to certain standards before it can be legally rented.

Without a licence obtained from the local authority it will not be possible to secure funding.

New investors will also need to be aware of the tenants' deposits scheme.

Tenants' deposits are no longer held by the landlord, but by an independent government-appointed company.

This step was taken to avoid disputes between a landlord and tenant.

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