Monday July 3, 2006 9:57 AM

Buy-to-let 'cardinal sin'. (Simon Lambert)

Property investors who put all their eggs in one basket have been warned against committing the buy-to-let 'cardinal sin'. Continued low interest rates and rising house prices have led to the return of strong interest in the buy-to-let market but people have been warned to make sure they diversify their portfolio.

Landlords are often tempted to invest solely in what they think they know best, but by doing so many run the risk of overexposing themselves to shudders in the market.

Dan Atkinson, of London agents Atkinson Mcleod, said: 'Too many landlords we deal with are too highly geared in one sector or area, which means they are extremely vulnerable if that sector or area takes a turn for the worse.

'Smaller scale residential landlords and investors need to take some tips from the asset management industry and create balanced portfolios spread across a diverse range of properties.

'The principles of asset allocation don't just apply to professional investors – they're also relevant to people investing in residential property. Yield isn't the be all and end all of a property portfolio, and neither should be growth – the key is to have an absolute return mindset that will protect you against factors beyond your control.

While diversifying their property portfolio can prove more expensive for a landlord, the benefits will be reaped if a particular market takes a hit.

Atkinson Mcleod says that if a two-bed ex-local authority property has been yielding 8% for the past five years then investors should resist the temptation to buy another flat in the same block or street. By buying a similar property in a different area, or a three-bed family home with lower returns but better potential for growth, they can instead spread their risk.

A buoyant buy-to-let market was revealed in the most recent landlord survey by Bradford & Bingley, which found 83% of investors planned to increase or maintain their portfolios in the next six months.

Meanwhile, 85% of landlords said their rental income on properties was the same or higher than a year ago with more than half – 52% - saying they had no void periods over the past 12 months.

Andrew Moss, Bradford & Bingley's buy-to-let product manager, said: 'Landlords are benefiting from the continuing rise in property prices and rents mostly staying the same or increasing.

'The outlook for tenants is positive too, as confident landlords are investing in their properties. A quarter of landlords spent between £1,000 and £3,000 refurbishing the last property they bought and 17% spent between £3,000 and £5,000.'

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Monday July 3, 2006 9:47 AM

Report highlights buy-to-let hotspots (UCB)

Early results from the latest half-yearly report on the UK’s buy-to-let market, due to be published by Nationwide’s specialist subsidiary, UCB Home Loans, at the end of this month, point towards continued growth in the sector, with some parts of the country performing particularly well.

Current property investment hotspots highlighted by the report include:

Swansea: The next big focus for buy-to-let activity in South Wales, partly due to regeneration of the docks.

Colchester/Chelmsford: Reasonable house prices and good connections with London are boosting sales of buy-to-let property.

Rugby: Expansion of the rental market is boosting investment in property.

Belfast: Expansion of the rental market, partly due to the increase in overseas workers, continues to stimulate the hotspots of Dungannon, Cookstown and Craigavon.

Bristol: Good demand for properties to rent and high confidence among prospective buy-to-let landlords.

Peterborough: Northern parts of the city are seeing the highest level of demand from property investors and Bretton is particularly popular.

In many major city areas, the level of purchases being made by landlords varies considerably. Cities with mixed levels of activity include:

London: Areas of East London are currently proving popular and prospects for the Olympics are helping to boost interest. The increase in the size of the rental sector, due partly to would-be first time buyers who cannot yet afford to purchase and are therefore renting at present, is also helping to support the market, and there has been a surge of interest in prime central areas. However, in some areas, high prices – and consequent low yields – are still dissuading landlords from making purchases.

Leeds: Buy-to-let investment is active on the outskirts of Leeds but is fairly static in the centre.

Birmingham: Whilst areas such as Harborne and Erdington may not always produce sufficiently high rental yields, other areas such as Kings Heath, where development projects are taking place, offer potential.

Manchester: The buy-to-let sector is picking up in comparison to last year, but rents are fairly static, especially in the city centre. The best deals are in less expensive parts of the city, particularly regeneration areas.

Edinburgh: Increased prices have put pressure on rental yields in the more expensive areas of Edinburgh, but there is continued rental demand from both local and foreign residents, many of whom are students.

Glasgow: Many property investors have turned their attention to Glasgow, where investments in the less-expensive areas of the city are producing better returns. However, in more expensive areas, such as the Harbour/Riverside, returns have been lower and not all properties have been holding their value.

"Investment activity in buy-to-let property has been particularly strong over recent months, reflecting the trend seen in the second half of last year, when lenders advanced a record 130,400 loans – 39% higher than in the first half of the year," said Keith Astill, managing director at UCB Home Loans.

"Activity in the first few months of this year has seen renewed interest in parts of central London, an area which had previously been relatively quiet due to the high level of house prices. In some respects this is due to the fact that other areas of the country have now caught up with the price rises shown in the south of the country a few years ago, and we now have a more even picture across the UK when landlords are looking for areas in which to invest. Overall, our research indicates that landlords are taking a long-term view of at least ten years when considering the return they will make from a property investment."

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