Buy to let mortgages have become increasingly popular in recent years due to 2 main factors.
1. Rising UK house prices. House prices have increased by over 100% in the past 12 years, leading to excellent capital gains for homeowners. In addition some areas of the country have benefitted even more.
2. Strong renting Market. Returns from renting have remained good, due to high demand for relatively low number of renting opportunties
3. Low Interest rates. Interest rates are much lower than in the past.
Many feel that the above factors may start to change. Firstly many economists believe that house prices may fall significantly in the near future, because they are overvalued. Therefore buy to let investors would be well advised to avoid buying at the moment. See house prices may fall 2007.
1. However there is no certainty house prices will fall. There are certain economic forces to explain the rising house prices. There is no evidence this has changed significantly. House prices may not fall
2. With a continued shortage of housing, the renting sector is likely to remain strong. However in some areas the income from renting is now failing to meet the requirements of being 130% of the value of the mortgage payments.
3. Interest rates have increased several times in the past 2 years, but economists suggest the future direction of interest rates could be downward by the end of the year. Inflation is still close to its target of CPI 2%. Also it is worth noting real interest rates are still very low by historical standards.
In the short term there may be some risk. But in the long term buy to let mortgages are probably a good investment affording the investor both a steady income stream and scope for equity gains.