Just over a tenth of UK housing stock is rented out. Although this is expected to rise significantly to 20 percent by 2010, it is still far lower than the average of 40 percent in the rent of Europe. The vast majority of those properties are let by private landlord insurance customers, and the market is concentrated in London and the southeast of England, university and seaside towns, and some other large cities.

In a market where the rent is determined by the number of rooms, size matters. Most rented properties are small: a third of privately rented properties are flats and the remainder are mainly terraced or semi-detached houses. Demand is high: rising property prices force many buyers to wait longer while they save a deposit, so they are fuelling the rental market.

Most of the 1.5 million tenants are young adults, nearly two-thirds of them under 35 and a quarter are yet to celebrate their 25th birthday. Many are professional single people or couples who either can’t or don’t want to buy into the property market and value the sense of freedom that comes with renting: if they want to move on, they can do so quickly and easily. Other factors driving tenant insurance customer demand are rising employment levels and continuing demand from first-time buyers unable to get a foot on the housing ladder. Increased immigration into the UK following the accession of the eastern European states is also having an impact in some areas.

The Pluses and Minuses

On the face of it, property is a sound investment: prices have risen in recent years, in many cases far out performing what can be earned from a deposit account or equity investment. Letting offers a rental income plus the benefit of any growth in the property value. However, prices can fall as well as rise (as shown by drops in value in the Eighties and early Nineties) and landlord is responsible for the maintenance of the property and has to find tenants willing to rent it or pay someone else to do this. It is important to view property investment as a long-term project, not a get rich quick scheme.

A higher percentage of the earnings is from the rise in value, as opposed to the profit made on the monthly rent. The introduction of buy-to-let-mortgages has encouraged more people into the letting market. These specialist deals are designed for those buying property expressly to let out to tenants. Such arrangements account for a tenth of the lettings market.

Dreams of yield

The key word for landlords is yield: how much the property is earning for them. Yield can be calculated in lots of different ways, but in its simplest form, it is the total amount of rent, minus running costs, divided by how much the property cost. Multiply the final figure by 100 to express it as a percentage.

The reason it is really important to calculate yield is that you may find your money would give a better return on investment just left in the bank or in some other investment scheme. Some buy-to-let areas are now so competitive that the yield on a rented property is hardly worth any more than putting your money in the bank.

Make sure that before you commit your hard-earned cash to buy-to-let, you discuss your options with an independent financial advisor (IFA) – it may be that you can get better returns from other investments, avoiding the associated administration of buy to let altogether.