Most lenders and brokers dismiss speculation that the buy-to-let bubble is set to burst but many warn that falling yields in London are a sign that buy to let is reaching saturation point in the South-east.
National broker Park Row Independent Mortgages says it is advising clients to buy properties in the North, where rental yields can be as high as 20 per cent compared with 4 per cent in the South-east.
Adviser Paul Singleton says: “More experienced investors are looking to expand their portfolio to the North. I would say buy loads in the North as long as you make sure you are getting the right property that will give a decent return.”
Broker club Mortgage Intelligence managing director Sally Laker says: “London reaching saturation point is not necessarily indicative of buy to let throughout the country. Our brokers are still doing a lot of business.
“Although yields have dropped, certainly in London, a yield of 4 per cent plus capital growth is not matched by many investments and means that buy to let is still a very viable proposition.”
Yet some commentators warn that property values may not grow as much in the North as in the South-east and that it may be difficult to dispose of investment properties.
Prudential national mortgage manager John Malone says: “People must differentiate between what is seen as simple buy to let and a geared investment with capital protection.”
Specialist lender Mortgage Express believes higher yields reflect lower property values. Product development manger Roger Hillier says: “Falling yields in the South-east do not surprise me if you look at the scale of capital growth in the last 12 months in parts of London. Investors should not just look at the rental yield but also consider how much the capital value of the property will increase.”
National broker Charcol is advising clients to use some of the profits generated in London over the past few years to invest further afield. Senior technical manager Ray Boulger says: “We have a few clients who got into the buy-to-let market and made a profit but have found it difficult to get new tenants. Some have made the commercial decision to take the profits and invest them in areas in the North that are not oversupplied.”
But the Association of Letting Agents, which gathers statistics from the main lenders in the market, says it has not seen a noticeable shift from London. Instead, it suggests that the London market may be returning to normality after a few years of inflated yields.
The Mortgage Business's analysis of the first six months of 2002 shows little difference from last year, with London and the South-east still accounting for about 29 per cent of its buy-to-let lending, followed by the South-west on 13 per cent and the North-west on 11 per cent.
Managing director Bill Dudgeon says: “Provided that investors take a long-term view, do their homework and pick the right property, everything looks good.”
Although views may vary on whether the South-east is becoming saturated, commentators agree there is a lot of life left in the market as a whole and it remains a profitable long-term investment.
This optimism is given credence by new figures released by the Council of Mortgage Lenders showing that £5.5bn of buy-to-let loans were taken out in the first six months of 2002, up from £2.5bn in the same period last year.
Director general Michael Coogan says: “Against the backdrop of recent stockmarket turbulence, it is not surprising that the buy-to-let market has grown strongly. Although rental yields are falling in some areas, landlords are continuing to find buy to let attractive and are not having any significant problems in meeting their mortgage payments.”
A sign of confidence in buy to let is the move by some of the biggest lenders in the market to improve their borrowing criteria to boost business. Brokers are finding that clients are willing to go for good discounted deals rather than fixed rates.
Laker says: “The product bias has switched from fixed to base-rate trackers with no redemption penalties since April this year.”
Mortgage Express last month doubled its maximum total loan for buy to let to£2m after its research showed that 63 per cent of landlords plan to increase their portfolios over the next two years.
Hillier says: “Despite speculation in the press that the market may be saturated and the buy-to-let bubble is about to burst, it is clear to us, as we have said all along, that property investors are confident in the market's long-term prospects.”
The market is in agreement that buy to let as a whole remains strong and, in the context of turbulent stockmarkets, makes a good long term investment.
Coogan says: “The sector continues to offer good prospects over the long term but borrowers need to continue to take a realistic view of the risks as well as the rewards. Fundamentally, buy to let remains sound and we expect it to continue to be popular in the future.”