Activity in the mainstream housing market has been slow to pick up so far this year but the signs from buy to let are more positive.Rents have generally been rising since last summer, up by almost 10 per cent on August’s figure. Paragon’s buy-to-let index for January shows average rents across the country reaching 10,459, up by 1.6 per cent on the previous month. Rents have now been well above the 10,000 mark for four months in a row, suggesting this steady improvement is well established. Yields earned by landlords, which had been following a generally downward trend for most of the year to September 2004, now seem to be moving in an upward direction. From a national average of 6.61 per cent in September, they have firmed to 6.76 per cent in January. Anecdotal and other evidence suggests that BTL inv-estors remain confident. A recent survey of around 200 longestablished landlords suggests confidence in the future of buy to let remains sound. Seventy per cent say their business is stable while 23 per cent des-cribe it as growing or booming. Buy-to-let landlords are not just keeping their nerve, they are also enjoying improved returns on their portfolios and the majority of them are committed to growing their portfolios. In Arla’s end-of-year survey of landlords, for example, investors indicate that they have no plans to sell in the year ahead and the majority expect to acquire more properties. The reasons for this positive viewpoint are readily understandable. With the number of first-time buyers who are willing or able to commit to buying a home continuing to dwindle, it is no surprise that there is a sustained demand for rented homes. The National Association of Estate Agents recently reported that less than 12 per cent of buyers are first-timers. This mirrors research that we conducted last year, showing that the proportion of people who are able to buy their own home by the age of 30 is declining steadily. From this same research, we also know that young people who are unable to get on to the housing ladder do not just stay at home with mum and dad. The impulse to move away from home and be independent is very strong and young people today tend to leave the family home at 20 compared with around 22 for previous generations. Increasingly, people in their early 20s choose to live in rented accommodation, either on their own, with a partner or with a group of friends, and in most cases they rent from private landlords. On top of this, Government policy has been to encourage further education, which also contributes to demand for rented accommodation. Government targets to raise student numbers from the current 41.5 per cent to 50 per cent by 2010 will have a further impact. Demand for rented homes is also spurred by longer life expectancy, rising divorce levels, growth in the number of single-person households and net migration. The availability of social housing has become more limited. Local authorities have virtually stopped building homes and have also sold much of their existing housing stock under right-to-buy schemes. Housing associations have significantly increased the number of properties they build but this growth has not matched the decline in local authority construction.It has fallen to the private sector to provide additional rented homes for the growing number of people looking for decent, basic accommodation. We have seen that underlying demand for rented homes is likely to remain strong but will landlords be willing to invest in new properties to meet this demand if it looks as if house prices could fall over the course of 2005 and beyond? Or is the buy-to-let investor likely to liquidate some or all of his or her portfolio rather than risk getting caught in a downward spiral of house prices? As indicated above, the trends in terms of rents and yields now seem to be firmly positive, reflecting the sustained demand from tenants. If a property is satisfactorily let, there seems little trigger for landlords to sell. If prices are softening or buyer interest is weak, a landlord is likely to hold on to the property and benefit from getting a stable rent rather than sell into an uncertain market. This highlights the fact that a long-term view and a professional approach are essential to success in buy to let. Some small-scale investors have been tempted into the market over the past five years by the relative attractiveness of property at a time when stockmarket performance has been weak but buy to let remains dominated by large-scale players. Statistics from the Office of the Deputy Prime Minister show that almost three-quarters of the rented housing stock is owned by just 13 per cent of landlords. Each of these 13 per cent of landlords owns more than 100 properties and over half of them own over 250. Investors with big portfolios such as these are not likely to panic in response to short-term signals on house prices. They run their buy-to-let businesses in a highly professional manner and are committed to property investment over the long term. They have the expertise and understanding of buy to let to make it a successful and profitable activity for them. The serious property investor is likely to benefit from the upward trends in rents and yields and to take advantage of a weaker housing market to buy selectively as and when the right property is identified at the right price.