Buy-to-let looking attractive

Buying property to let out to private tenants is beginning to look like an attractive proposition, as reduced house prices and a steadying rental market bring about seductive returns for investors.

According to figures from LSL Property Services, annual returns on buy-to-let property have just turned positive for the first time since the credit crisis started in August 2007.

LSL calculates that if a landlord purchased a property in November 2008 they would have made a return of 2.4%.

The return is modest, but the last time buying a house or flat would have generated a positive return at all was July 2007. Buying between August 2007 and October 2008 would have resulted in a loss.

But annual rents are starting to stabilise and as a result buy-to-let investors are coming back to the market. According to the Council of Mortgage Lenders, buy-to-let mortgage lending increased by 10% in the three months to the end of September.

While rental yields in central London remain modest – anywhere between 3% and 5%, according to property investment specialist Stuart Law of Assetz – it is still worth investing as strong capital growth can be anticipated.

“As a rule, yields in outer London – areas like Ealing or Islington – exceed the “prime” areas, the central, more desirable postcodes. Though with prime you’re more likely to sell your home for more in the future, of course”, says Marcus Dixon, of the Savills residential research department.