If you purchase your property investment using all cash (i.e. without getting a buy to let mortgage), the return you will get is not much different to that which you could achieve with other types of investments.

The reason why property is such a good investment is that with property you usually do not pay using cash- instead you use someone else’s money to buy your property. Banks have always recognised property, and especially residential property, as an excellent security.  As a result they are happy to lend a high percentage of the value of a property. Banks are aware that property values have never permanently fallen over the long term.

The benefit of being able to borrow money to invest is called leverage. You put down a small deposit, typically between 25% - 30%, and the bank finances the rest.

Given the ability to borrow money to purchase a buy to let investment you can therefore have a larger investment than you would normally be able to. If you look at an example of a typical buy to let investment costing £100,000. If you have £100,000 available, (maybe through the equity in your main residence) you can purchase this property without getting a buy to let mortgage. However, with the ability to borrow, if you only need to put down a 25% deposit, instead of buying one property at £100,000 you could buy 4 properties and put down a deposit of £25,000 on each.

This will significantly increase the amount of profit you can make from your property portfolio. To work this out for yourself please sign up to my newsletter at www.marywaring.co.uk. A downloadable buy to let calculator will be sent to you. You can then try a number of different alternatives and see the effect on your return.

Because of its history of security, stable income and proven capital growth, residential property is regarded as a prime security or collateral for loans. This means that banks will often lend you up to 75% of the value of your property.

Property is viewed as excellent security, and as a result banks will lend investors money to purchase a property investment. You do not need to find 100% of the property value as an investment. You only need to find a proportion of the value in order to be able to purchase. However, although you invest just a portion of the funds you will actually receive capital growth on 100% of the asset.

Imagine you own a buy to let property portfolio with a value of £500,000. You will put down a deposit (say 20%) and you borrow the balance (£400,000) from the bank.

Typically since the War house prices have doubled every 9 years. If you assume this trend continues, then after 9 years your property value would have increased to £1 million. If you had an interest only mortgage your loan would still be £400,000. Your initial net worth (assets less debt) was £100,000, but 9 years later your net worth has increased to £600,000. Your net worth has increased by 6 times even though the value of the property has only doubled.

This is because you get 100% of the benefit of the increase in value. You put down only a percentage of the property value and borrowed the rest. However, the lender does not ask for a share of the increase, even though they financed a huge chunk of the property purchase.

The Bank of England cut the base rate yesterday to 0.5%, reaching yet another all time low. .

This is good news for those on a base rate tracker mortgage. But for those (particularly the elderly) who rely on their savings it has brought more hardship. Savers have seen the value of their income depleted over the past year. The government have been encouraged to introduce measures to help those who rely on savings for their income. Although the government have said the pans are to be introduced there is as yet no suggestion as to what form this help will take.

In an effort to stimulate demand the Bank of England is to now introduce “quantitative easing” i.e. creating new money. The initial new tranche of funds will be £75 billion, but the full amount could reach £150b.

It is hoped that the new funding being made available to banks and building societies will then encourage them to lend more in turn.

If you want an explanation of how quantitative easing will boost the economy there is a very good short video from the Financial Times explaining how it all works.

See http://tinyurl.com/cyebhb

At noon today the Bank of England will announce their decision on interest rates & it is widely expected base rates will fall to a new all time low. Base rate is currently 1% and it is expected to fall to 0.5%. Bad news for savers but yet more good news for anyone on a tracker mortgage.

For anyone thinking of getting a base rate tracker mortgage it may be too late for the benefit. With rates so low there’s really only one way rates can go in the short to medium term. Therefore anyone with a tracker mortgage may well see increases towards the end of the year.

A number of lenders are now introducing ways to protect a borrower from increasing rates. Some are putting a cap on their base rate tracker, whereby even if rates rise there is a limit above which the borrower will not have that increase passed on by way of higher monthly charges. The lender will suffer the cost. Other lenders give the option to transfer to a fixed rate during the tie in period of the base rate tracker without paying a penalty.

To help with your decision do take proper financial advice from an independent adviser.

For mortgage advice please see www.marywaringmortgageadvice.co.uk

The Financial Times has today reported that as a result of new capital available to the banks it is expected that there will be some new fixed rate mortgages with extremely attractive rates.

Two of the state-backed banks, Northern Rock and Royal Bank of Scotland, have promised to lend billions of pounds worth of new mortgages this year

Two-year fixed rates are already at their lowest level for six years. The FT states that brokers have warned that opting for a cheaper two-year fixed rate could be risky, as borrowers who do so may need to switch to another deal just as rates become more expensive.

For mortgage advice see www.marywaringmortgageadvice.co.uk