June 2003

What makes you think this would be a good investment move for you? There is an old saying which says that once you can see a bandwagon, it's already too late to climb aboard. Are you considering a BTL investment because you have analysed the market and your financial situation and on the basis of this calculated that it will be a good move, of are you acting on the advice of a friend or colleague or someone you met at a dinner party?

The problem with BTL at the present time is that, in common with all fashionable 'great' ideas, it is in grave danger of being a victim of its own success. Look around your local area and see how many To Let signs there are. Are there more than you would normally expect to see at this time of year? Have a look at the ads in the local property papers. Are rents lower than they were a year ago on the same types of property?

Consider that, if you already have a mortgage on a property, and you invest in a second or third property, you are effectively placing all of your eggs in one basket.

Ask yourself what would happen if house prices fell, and both your house, and the house you were considering investing in were both worth 20% less two years from now. Would this present you with a problem?

Could you afford to pay both your present and your BTL mortgage if you were without tenants for 3 months of the year?

What if interest rates rose by 2%. Could you still cope then?

Could you manage if you became unemployed?

Of course these things might not happen, and it is probably unlikely that they would all happen together. However, if you were facing having your BTL property repossessed because you are unable to meet payments on the mortgage for whatever reason, could you live with the consequences?

Also, consider the long term future of BTL. House ownership is the ultimate goal of the vast majority of UK residents. Demographic changes indicate that the number of 20-30 year olds (most likely to be your prime tenant target group) is decreasing and is likely to remain low for some years.

As the number of BTL properties increases, there is likely to be increased competition for tenants, and a consequent fall in rents. Some people think that because first time buyers are being priced out of the market that this will result in increasing numbers of renters to sustain the BTL market. However, a large proportion of these people still have ambitions to buy, and may well instead choose to continue to live with parents for longer as they save for deposits instead of renting.