A Buy-To-Let Bubble? by channel4.com/4homes

The buy-to-let boom - is it bubble about to burst or a still growing market? With interest rates as they are, the market remains uncertain. So, if you're thinking of investing, what should you keep in mind?

By Jeff Salway

A Popular Investment with an Uncertain Future

While rising interest rates certainly aren't deterring buyers, buy-to-let mortgages have increased 30-fold in the last decade and there are concerns that Britain is in the grip of a buy-to-let bubble.

Last year, a record 330,000 loans worth £38.4 billion were taken out by buy-to-let investors, equal to 11% of all lending, according to the Council of Mortgage Lenders. Yet experts say many new landlords are unable to cover their monthly costs because property prices have risen so much faster than rental income.

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Buy-to-let broker Landlord Mortgages reported a five-year low in annual rental yields in 2006, while the gross yield on the average residential property is 5%, according to the Association of Residential Letting Agents - below the typical cost of borrowing.

"The cost of the average property has risen by 66% over the last five years, while rents have risen slightly above or in line with inflation," says Lee Grandin, managing director of Landlord Mortgages. "This has created an environment where investors need to be less concerned with high rental-yield figures and more concerned with achieving sufficient rental to cover their mortgage repayments."

" Many industry insiders have been doubtful about the future of buy-to-let for some time, warning that investors are ploughing money into an already saturated market and that house prices cannot continue to rise as they have been. But others insist that buy-to-let can be a stable long-term investment - providing investors do their research. "

"Savvy investors need to concentrate on finding the balance between the prospect of long-term growth, rental coverage and profit when they search for the ideal buy-to-let investment,"

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