Evening Standard (London): buying into the future

The buy-to-let market is 10 years old, and new pension rules will give its second decade a massive boost, says David Spittles TEN years ago, buy-to-let burst onto the property scene as a tantalising new investment option. The housing market was just emerging from a slump. Regulated tenancies had been scrapped, eliminating the risks for landlords and prompting lenders to offer special low-rate mortgages.

Young, enterprising Londoners were among the thousands who seized the chance to purchase property as a pension alternative.

From this cold start, buy-to-let has grown into a massive industry and is now worth at least Pounds 100 billion. An estimated 30 per cent of all new flats are bought by investors. The Council of Mortgage Lenders says there are 526,000 buy-to-let borrowers in Britain.

Smart buyers have done well, using rising prices to build up big portfolios.

Today, there are more than 50 buy-to-let lenders. Most are prepared to advance up to 85 per cent of the purchase price by taking the projected rent of the property into account rather than the borrower's salary.

This has enabled investors to expand rapidly into property. Paragon Mortgages, one of the leading buy-to-let lenders, says its typical investor now owns an average of 13 properties, according to a survey of its borrowers, usually on interest-only mortgages that are covered by rental income.

Barclays is actively increasing its buy-to-let operation, arguing that arrears in the sector are lower than for mortgages in general.

Developers have helped fuel the buy-to-let boom by selling flats "off-plan", a concept almost unknown 10 years ago. Because developers require only small holding deposits - as little as five per cent at exchange of contracts - investors have a big incentive to buy at schemes where completion is two or three years down the line and where resale values may be higher.

Ibosa Oshodin, 41, a former British Rail clerk who lives in south- east London, has amassed an empire of more than 100 properties over the past decade. "It was slow going at first, but properties were relatively cheap and appreciating fast. By buying off- plan, I was getting a 100 per cent return by the time the homes were complete."

continuing to buy, using his contacts and expertise to do deals with developers.

Property syndicates have also flourished by negotiating discounts with developers for buying in bulk and then reselling flats to individual investors. However, earlier this month the Government announced a crackdown on rogue property clubs, making get-rich- quick promises to vulnerable people who join the clubs and fail to realise that often the only ones making a profit out of their new buy are the directors of the club.

Now, just as the maturing buy-to-let market settles, another government initiative is set to give the sector a shot in the arm.

From April 2006, new pension rules will make investing in bricks and mortar for retirement a compelling financial choice for thousands more people.

Anyone will be able to buy property through a Self-Invested Personal Pension (SIPP) and claim juicy tax breaks. Even the purchase price will attract full income-tax relief, meaning that higher-rate taxpayers will be able to buy at a 40 per cent discount.

Knowledgeable insiders predict the new pension regime will give at least a short-term fizz to the property market by triggering a flurry of buying activity. Impatient investors can act even sooner. The Inland Revenue has confirmed that properties bought off-plan prior to 6 April 2006 will qualify for inclusion in a SIPP if completion is after this date.

Already, shrewd investors are searching out good-value developments where flats are due for completion as far in advance as 2008.

However, it is easy to fall foul of the pension rules. The priority is to set up a SIPP and make sure the pension fund buys the property. If a home is bought in an individual's name or that of a trading company, the property will not qualify

for inclusion in a SIPP. Analysts believe there is still potential for decent buy-to-let returns if people make astute choices about where and what to buy - and take a long-term view.

In London, and outside the capital, developers are trimming prices and doing deals, which is luring back investors. Rents are nudging up again, though not uniformly, and it is possible to get guaranteed rental returns of six-percent-plus for two years. Galliard Homes offers this at schemes in Westminster, Drayton Park and Hatton Garden. Call 020 7620 1500.

Berkeley Homes has quietly cut prices by 10 per cent at its Tabard Square development in Borough, a scheme of 560 apartments where prices now start at Pounds 320,000. Call 020 7321 2122.

Go for an improving area where there is a regeneration spin-off or new transport links.

King's Cross, Peckham, Bow and Royal Docks spring to mind.

Investors should also consider buying flats that mid- salaried employees (up to Pounds 35,000 a year) can afford to rent. This means rents of no more than Pounds 150 a week, which is achievable in suburban town Investment plan: Richard and Christine Whyman bought a flat in Maidstone for their children, Shaun, who lives there with his fiancEe, Kelly, and Kim centres that have good commuter links, places such as Sutton and Watford.

But avoid buying on big developments where too many other investors are doing the same thing. And resist the temptation of buying offplan in order to "flip" (sell on) the property before completion. That is Russian roulette.

Richard Gooding, managing director of London City Airport, decided to dabble in buy-to-let after trading up to a 2,600sq ft penthouse at the Docklands development where he lives.

Rather than sell his existing two-bedroom flat at Odyssey, a Redrow scheme close to Canary Wharf, he chose to keep it as a rental investment.

"With all the bad news about pensions, it seems wise to spread investments.

The advantage of buy-to-let over stocks and shares is that, if all else fails, you can live in the property."

Richard knows the Docklands area intimately having worked at the airport for 10 years. He believes the local rental market has a strong future because of the employment growth at Canary Wharf and the infrastructure improvements making Isle of Dogs a better place to live.

A new DLR link to City Airport is due to be in operation by December of this year.

Only one flat is left at Odyssey, priced at Pounds 439,950. Call Redrow on 01268 886400.

'We intend buying more properties' WITH two children who are still students, Richard and Christine Whyman decided buy-to-let was a good idea.

Last year, the couple bought a one-bedroom flat at a new development in Maidstone, Kent.

Their son, Shaun, is living there with his fiancEe, Kelly, and will move out when his sister, Kim, who is studying to be a nurse, takes up a job at Maidstone Hospital.

"Both of them plan to move abroad and we will then let out the flat in the traditional way," says Richard, 47, who works for British Oxygen Company Group.

"We intend buying more properties. I had invested in shares, but after 12 years their value was half what I thought it would be, so I decided to put my money into something else."

Apartments at Springfield Quays in Maidstone cost from Pounds 159,950. Call

Barratt on 01622 693252.