by Lily S

Created on: June 22, 2009   Last Updated: July 31, 2009

In the UK, buying a residential property to rent out is called entering the "Buy to Let" property market. During the property boom, Buy to Let was big business and all sorts of people rushed into it - some who were quite careful about the type of property they were purchasing and for how much, and others who rushed in and bought over-priced city centre flats convinced that they would be easy to rent out and that the ever escalating property market would make them a profit just from capital gains.

Well the property market has collapsed, and many of the Buy to Let landlords who bought city-centre flats are struggling. Typically, lenders are also trying to reduce exposure to this sector, so getting a new Buy-To-Let mortgage is tough. But paradoxically, because the property market is down, now might be the best time to snap up bargains, particularly at auctions of properties being repossessed and thus sold at a discount. Because the UK is a crowded island with very tight planning controls, property always rises in the long term. It is possible to make a profit out of the Buy to Let sector, provided you are canny about what you pay for your property and about what type you buy. Here are some tips for what to do:

1. First of all, have you got the money to invest in residential property for rental? It's hard to come by a Buy-to-Let mortgage now. Lenders are demanding a deposit of at least 25% of the value of the property, and the best mortgage deals are reserved for those landlords who can put down a deposit of 40% or more. Cash buyers of course are in the best position as they can take advantage of bargain deals without having to deal with a lender at all.

2. Do your sums. You should aim to get rent of at least 125% of the mortgage repayments. If you are opting for a tracker/variable mortgage, make sure you factor in interest-rate rises. Work backwards from the going rents available to calculate the maximum mortgage payments you should make, and backwards from that to calculate the amount you should borrow.

3. Choose a location where it is easy to rent property. Part of the reason landlords stuck with deluxe city centre flats are struggling, is that those are properties that needed premium tenants to rent to, in order to cover the price of the property. In recessions, premium tenants (usually new graduates who have just started work in accountancy, law or the financial sector) dry up. It might be better to aim for the student let market, or the shared house market

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