The number of buy-to-let mortgages rose in the last three months of 2009 – the first increase for two years - and rents are edging up again.

If there’s one thing that the credit crunch has taught us it’s that you shouldn’t pile into an investment, such as property, because others are doing it. Although recent surveys show that more investors are taking out a buy-to-let mortgages, rental levels are rising and mortgages are beginning to become more competitive, there is still some uncertainty to come. An election in the summer and a fragile economic recovery mean it’s hard to predict how the market may develop.

Sorting out the finance
Buy-to-let mortgages are becoming more competitive, but raising finance is still the biggest stumbling block for first time investors.

• Maximum loan-to-value limits are 75%. The bigger the deposit, the better your choice of mortgage deals.

SAVVY TIP: You may be able to get a loan with a slightly higher loan to value, but you won’t get much choice of deals. You can compare buy to let mortgages at mortgage brokers John Charcol, Savills Private Finance. If you call mortgage broker London & Country, they can give you information on rates over the phone.

• Expect lower loan-to-value limits on new build property. After problems with overvaluations and mortgage fraud before the credit crunch, you will need a bigger deposit if you’re thinking of buying a new build flat.

• Arrangement fees can be high. Most arrangement fees are a percentage of the loan (which can be up to 4%) – so on a £150,000 loan, you would have to pay an arrangement fee of £6,000.

SAVVY TIP: Unlike ordinary residential mortgages, buy-to-let mortgages aren’t regulated by the Financial Services Authority. That means you don’t have the same protection and you can’t complain to the Financial Ombudsman Service if there’s a problem and the mortgage lender or broker can’t sort it out.

• Lenders will scrutinise credit score information carefully. Stephen Noakes, from Lloyds banking group (whose brands make up the biggest buy-to-let lender), says that the type of property you buy will have an impact on how carefully your credit history is checked. “If you want to buy a property in an area that’s likely to be down valued, lenders will look at your credit history much more carefully.”

• Lenders will expect rents to cover mortgage payments by around 125%. You should also factor in a void period of one month per year and assume that rents may fall in the future, rather than rise.

Look at the figures
It’s easy to focus on property prices (not least because that’s what the media gets very excited about). But for buy-to-let investors, it’s the rental yield that’s important. Rental yields started rising in April 2009 and have increased steadily ever since.

• The rental yield is the rent per year expressed as a percentage of the cost of buying a particular property.

SAVVY TIP: Several websites have rental yield calculators – some set out better than others (there’s an easy to use rental yield calculator at an estate agency firm called Martins.

Choose your property carefully
According to a survey by the Royal Institution of Chartered Surveyors, more tenants are looking to rent out houses than flats. Read the article on buy to let for beginners elsewhere in this section for information on researching the market.

• Be prepared for prices to fall. Some believe the current rise in house prices is unsustainable and a number expect prices to fall in the coming year if more properties come onto the market.

• Talk to at least two lettings agents. Even if you’re planning to rent out the property yourself, a good lettings agent will be a valuable source of information about the type of properties that are renting and how much they’re renting out for.

SAVVY TIP: Currently there’s no licensing or regulation of lettings agents, but members of ARLA (the Association of Residential Lettings Agents) have to sign up to a code of conduct.

• Understand the rules and regulations. There’s been an increase in legislation for landlords over the last few years (energy performance certificates and the tenancy deposit protection scheme are two examples).

SAVVY TIP: The National Landlords’ Association costs around £70 a year (plus a one-off joining fee) and has an advice line, information and resources. It also organises annual Women in Property awards for female buy-to-let investors.

SAVVY HELP Ray Boulger of mortgage brokers John Charcol is one of SavvyWoman's panel of experts. Why not ask Ray a question about buy-to-let mortgages by clicking here?