Choppy equity markets are making buy-to-lets look attractive. So is now a good time to become a landlord?

Equity investors are experiencing a bumpy ride while life for landlords seems rosy, with rents and yields rising — so investors are being tempted to switch.

When the technology bubble burst in 2000, heralding a three-year bear market, thousands of investors poured money into buy-to-lets. Shares were falling, house prices were rising and many people thought property was the best way to make money. It was the hot dinner-party topic, and the Council of Mortgage Lenders says that between 2000 and the end of 2005 the number of buy-to-let mortgages increased by 483%.

Investors were terrified of the stock market. Property was popular because people like investments they can kick and touch, particularly in times of uncertainty.

After three years of recovery, confidence in stock markets has picked up but people are having their nerves tested again by the recent volatility.

Over the past 10 years house prices have risen by more than share prices. Property values are 182% higher, according to the Halifax house-price index, compared with a rise of 57% for the FTSE All-Share index.

There has been a resurgence of buy-to-let activity since last autumn. Upbeat landlords are buying properties, secure in the knowledge that there is good tenant demand for the right property in the right place.

Demand stems from would-be first-time buyers, migrant workers, a shortage of social housing and an increasing number of students. The Association of Residential Letting Agents said that nearly half its members believe there are now more tenants than properties available. This is helping push up rents, which are rising at their fastest for five years, according to the Royal Institution of Chartered Surveyors.

Your investment decisions should never be based on what is flavour of the month and you shouldn’t chop and change just because a certain type of asset is not performing well.

The aim is to build a balanced portfolio to suit your investment objectives and attitude to risk through varying circumstances. You should then be well placed to ride out any volatility.

Article date: July 2006