Buy to let rises above the credit storm

Buy to let is one of the few areas of the economy to defy the downturn caused by the credit crunch and all the indicators suggest that it is actually benefiting.

The Royal Institution of Chartered Surveyors reported a 29% increase in instructions from people wanting to let property in the first quarter of the year. That was in stark contrast to a 2% fall in the previous quarter.

The reasons for the turnaround are quite straightforward. House sales may have fallen but people still need somewhere to live and so they turn to rented accommodation.

The Association of Residential Letting Agents (ARLA) reports that demand for rented accommodation is outstripping supply in many areas. A survey of its members showed that 39% of agents say there are more tenants looking for accommodation than there are properties to house them.

In turn, more people are looking to the private rented sector as a good investment. Many sellers who can't get the prices they want for their properties are choosing to let instead, some as a long term investment and some as a short term measure while they wait for mortgage lenders to offer better deals to potential buyers so the housing market can start to rise again. In the meantime, they can look forward to taking advantage of rising rental yields.

Investors already involved in buy to let are also standing firm and looking for increased returns in coming years. ARLA recently reported that 90% of investment landlords had no intention of selling their properties even if house prices continued to fall. Most of them see buy to let as a long term investment and many see it as part of their pension provision.

Many investors are just as active and busy as ever as they respond to changing market conditions. Some are taking advantage of the drop in house prices to add to their portfolios. Some properties are being sold below market value so the vendor can avoid repossession.

Of course, while buy to let is holding firm in an uncertain economic climate, it is not without its pitfalls. Investors need to be careful where they place their money and make sure they choose the right properties in the right areas to suit their needs. They should also remember that there are numerous legal requirements landlords have to meet such as obtaining licences for some houses in multiple occupation, fulfilling all their obligations to tenants and entering into tenancy deposit schemes.

All landlords run the risk of sometimes having to deal with problem tenants. Some may fail to keep up with the rent or not treat your property as well as they should. In these circumstances you may need to take legal advice so you can take action to recover rent arrears or to recover your property from bad tenants when necessary.

As the figures show, buy to let remains an attractive proposition for both small and large investors as long as they are prepared to plan carefully and follow the correct legal procedures at all times.