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Consumers who are considering renting their first home can relax.  The younger landlords are showing that they are as responsible, or more so than the corporations, and less likely to be looking at the buy-to-let market as a get rich quick scheme, or a place to make an unscrupulous ‘quick buck.’

The National Landlords Association (NLA) said that the booming buy-to-let market is seeing younger landlords have an ‘increasingly professional attitude.’ New figures from the Mortgage Trust state that one third of the new buy-to-let investors are between 26 and 35 years-old.

Many of these people are taking advantage of house auctions, easy to obtain mortgages, and soaring rents, to build profitable wealth generating portfolios.

The NLA’s comments are in response to the government’s new Tenancy Deposit Protection (TDP) scheme, which is designed to protect tenants from unscrupulous landlords.

The law, a part of the 2004 Housing Act, now states that landlords are accountable for the proportion of their tenants’ deposit they withhold at the end of the tenancy.

Richard Gard, public affairs officer for the NLA said: “I’ve noticed that it’s the young buy-to-let landlords who are very keen to find out their responsibilities; they realise that they’ve got responsibilities and they also want to know their rights.

“We’re really emphasizing that landlords should join a reputable landlords association, such as ours. If not ours, then there are others out there.

“The cost of joining an association aren’t that high and there are benefits. At the very least, landlords can find out what’s coming up and what the legislation requires of them,” he added.

The trickle effect has finally hit the UK economy as consumers tighten their belts after four, almost successive, interest rate hikes. However, analysts are still reminding consumers that the interest rate has not hit the ‘breaking’ point of 6 per cent, nor has it hit the levels it did a decade ago.

Despite high spending in the retail sector last January, there are now reports which indicate that consumers are not spending as heavily as they once did.

Nationwide’s Consumer Confidence index is slightly higher than last month, as reported in Reuters.

“The index seems to be showing that consumers are responding to the three increases in interest rates. All of the indices are well below the levels recorded before the first rise in rates,” said Nationwide chief economist Fionnuala Earley, reports Reuters.

“Consumer sentiment remains fairly downbeat, but underlying feelings about jobs and income have not collapsed which suggest a fairly stable economic background,” she added.

However, there is good news for consumers who are trying to reduce their debt.  The Bank of England increased the interest rate in an attempt to lower the inflation rate.  While the interest rate impacts the economy, short term, a high inflation rate would create problems for years to come.

This leaves consumers who are trying to build wealth a window of opportunity to take advantage of the buy-to-let or residential housing market.

This is a good time to start a new business in many sectors except retail.  It is still relatively easy to apply for a secured loan that can be used to set up a business.

If you are planning on purchasing a property with the idea of renting it out to tenants, then there are a few things you will need to consider.  You will first need the financing to purchase the property, and then you will additional financing for the upkeep of the property.

When you look into financing for the property, one option to consider is buy to let mortgages.  These mortgages are available to those who wish to purchase a property with the intention of letting the property out to tenants.  Because of the increase in property value and the low interest rates that are being offered, many people are starting to invest in property, and buy to let is one form of investing.  A buy to let mortgage differs from a residential mortgage in the sense that lenders require a larger deposit on the loan, typically a minimum of 20-25% on the property value.  The lender will also look at the rent potential of the property, deciding whether or not they will offer you a mortgage based on the potential of being able to rent out the property for a reasonable price.  The interest rate on a buy to let mortgage is also slightly higher than residential mortgages.

If you are able to provide the financing for the purchase of the property, you will then need to consider if you will have enough to cover the upkeep of the property.  Although you automatically expect the rent to cover all the expenses, you will need to make sure that you will break even or profit from your property.  Additional costs you will need to consider when letting out your property include, letting agency fees, service charges, insurance, gas and electrical appliances, furnishing, decorating costs, and legal insurance.  All these costs can add up.  Owning a property and letting it to tenants, can be a big task and a financial risk if you are not careful and outweigh all your options.

A study by SAGA and Principal International shows that half of their survey group,  aged over 50 will consider buying abroad with Spain as the favourite location.

Spain’s proximity to the UK, its climate and its slow pace of life are the determining factors.

However, realtors do warn consumers to avoid combining a holiday with property shopping.  George and Eleanor Whillock  set up Keyhole Property Search in Mallorca.

Whillock said: “You have an absolutely beautiful island with a vibrant property scene, but it is very competitive. It’s easy to get it wrong. People make the mistake of combining a holiday with buying a house. The combination of sun and wine can lead to the wrong decision, [especially] with some agents who can be a bit pushy. That was our experience when we were buying, so we got involved in helping people into the marketplace.”

However, moving to Spain is not cheap.  Apartments cost up to £1m and villas can cost as much as £13.4m in Mallorca.

But, Spain does have investment potential. “People are looking at high inflation on property prices,” Whillock explains. “As an average across the island in 2005, prices rose by about 15 per cent. We bought our apartment in June 2005 and paid €430,000 [£288,000] for it. Today it’s worth €650,000 [£435,000].”

Recent reports reveal that many UK consumers are purchasing homes around the world for their retirement partially for the investment, and partially to provide a variety of options.

The number one draw for the content is the lower interest rates.  Homeowner loans are cheaper in Spain, but like all things, consumers are warned to get a reputable agent and do not rush into anything.

Bernard Clarke of the Council of Mortgage Lenders points to several factors suggesting that people who borrow loans to get into the buy-to-let industry are being quite shrewd.

“When there have been suggestions that the market might be levelling off, as in 2004, the rate of growth of new buy-to-let borrowing slowed down,” he said.

He points to other indicators:

“Mortgage arrears are lower than for the mainstream mortgage market, which is low by historical standards anyway. This suggests investors are making sensible decisions.”

The buy-to-let market has produced a boom market for private landlords and loan companies.  In the first half of 2006r, new mortgage borrowing to purchase a buy-to-let property hit new records.  The new landlord, Private Landlords,  took out 152,500 such homeowner loans, 17 per cent more than the previous six months, according to figures from the Council for Mortgage Lenders (CML).

There are 767,000 buy-to-let mortgages, accounting for 8 per cent of all current home lending.  This is a 1 per cent increase from 1999.

The buy-to-let market has produced good returns for the Private Landlords who have seen the value of their properties move up.  Most of them only own a couple of properties, hoping that they will build enough money to retire.

Only 6 per cent of Private Landlord claim they are in the business to make money.  Most Private Landlords have taken out mortgages on the properties, and are hoping that the rents will pay the mortgage, leaving the homeowner with an income to draw from, or that they will be able to resell their home in sixteen years and earn a profit.

Loans, other than homeowner loans, in 2005 were £40.9 billion. In the first nine months of 2006 ‘other loan’ lending equaled £50.9 billion, most of is for buy-to-let investors.

The biggest increase is buy-to-let loans.  They increased from £13.9 billion in the second quarter of 2006 to £23.1 billion in the third quarter, partly due to the increase in interest rates.

The industry attributes the increase in buy-to-let lending to fierce competition which narrowed the margin between buy-to-let and mainstream lending rates, and the improvements in terms and conditions of buy-to-let loans.

A number of lenders now offer buy-to-let loans up to 90 per cent of the value of the home. This is a major improvement over the reluctance lenders use to lend out buy-to-let mortgages.

As long as house prices grow, even by 2 per cent landlords will profit by borrowing. Some investor’s portfolios exceed £20 million.  A 2 per cent growth is a profit of £20,000 a year. Until supply and demand for property swings people will continue investing.

‘The buy-to-let market is being driven by extremely strong demand from tenants.’ According to the Royal Institution of Chartered Surveyors that suggests rents will increase to their highest in five years. ‘Tenant demand and rental levels accelerated in the quarter to July, driven by a strong economy, declining accessibility and immigration from EU accession countries,’ says RICS.

John Heron of buy-to-let lender Paragon is bullish about 2007. He said:

‘This is encouraging buy-to-let investors to increase their portfolios.’

‘Landlords are taking a long-term view and are happy if the rent covers the mortgage interest payments.’ But he comments on interest rates hikes in 2007. ‘They could go to 5.5%. But when you see house purchase transactions go down, you see an immediate uplift in tenant demand.’

UCB Home Loans, the specialist lender of Nationwide, today dismissed fears that a thriving equity market and a drop-off in immigration from other European Union countries could bring about a downturn in the buy-to-let sector.

The lender’s most recent report on buy-to-let indicates that immigration from other EU countries is unlikely, as some have predicted, to decline over the next few years. This segment of the population has given significant support to the buy-to-let sector in some parts of the country by providing a ready supply of new tenants.

The government’s Accession Monitoring Report, published this August, states that 427,000 workers from Eastern Europe registered to work in the UK between May 2004 and June 2006. When the number of self-employed is added, the true figure is believed to be closer to 600,000.

Keith Astill, managing director at UCB Home Loans, comments: “Most of these people are renting and, in some parts of the country, they form an important part of the rental community for buy-to-let properties. This has been particularly beneficial for landlords in these areas, as it has helped to keep void periods to a minimum whilst maintaining rents at a reasonable level.”

The recent drop-off in the number of workers coming from Poland, combined with government restrictions on immigration from Bulgaria and Romania, could lead to a downturn in the buy-to-let sector in areas where large numbers of foreign workers are concentrated. However, UCB Home Loans says that this scenario is extremely unlikely.

“Young foreign workers have provided substantial support to the UK economy over the past couple of years and, as net tax contributors, they take little back in the way of support or benefits,” said Keith Astill

“If the number of people coming to the UK does ever begin to fall off, it is likely the government will alter regulations to enable workers from other European Union countries to take their place,” he said.

Many buy-to-let investors are experiencing a growing increase in the difference between their mortgage payments and the rent they can collect on their properties.  Rental incomes are falling evenly across the UK.  Nationwide they dropped an average of 5.70 per cent to 5.50 per cent.  London is experiencing a 2 per cent greater decline.

Buy-to-let lenders are optimistic. They claim that the situation is stablising. One company, Landlord Mortgages surveyed the profits across Scotland, England, and London.  The survey suggests that the markets are becoming linked. Brokers are predicting that this might lead to above average rental profits in smaller areas.  Landlord Mortgages suggests that smaller areas  like Bath and South East Avon will offer more of an investment on return than larger regions like Scotland or the South West.

The problem is blamed on the drastic rises in house prices combined with the increases in interest rates.  However, there are several factors. One difficulty was brought on by the Government’s new regulations regarding rental units, which force landlords to invest thousands of pounds into upgrades in each unit.

Mortgage lenders added to the problem by changing their criteria for borrowers, and putting a greater financial stress on their customers.  One change that hit the market in recent months is an increase in the minimum rental coverage from 125 per cent of the mortgage’s repayment to 115 per cent.  Despite optimism on the part of lenders, recent statistics have shown that rental profits have dropped every quarter this year.

This has left buy-to-let owners with few options.  Borrowing enough to meet the government regulations and upgrade the units to attract a higher class of renter, or selling outright, appear to be the only options for many landlords.