Should you back to buy-to-let?
If you must rush out to buy a buy-to-let property, make sure it's a cheap-ish one, says Merryn Somerset Webb.

Is the British property market in a bubble or not? Your answer will depend on where you live and what you think about interest rates.If you live in London, the answer is a clear yes. On any reasonable metric, there is a property bubble.
No one on even a pretty high London salary can afford to buy a place anywhere near the centre; yields are pathetic more 2% than 6%; prices have been rising for 39 consecutive months; and any agent on even a nodding acquaintance with honesty will tell you that speculation is rife.
They'll also tell you that more than 70% of new-builds in our capital are sold to foreigners often sight unseen' out of glossy brochures circulated at 'cocktail previews' in Hong Kong.
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If you live elsewhere in Britain perhaps just outside commuting distance of Newcastle the very idea of a bubble will make you chuckle bitterly. There, prices are down 30%-40% in nominal terms (ie, before inflation) and sales numbers are at, or near, historic lows.
But whether you live in London or in England's northeast, your view on what will happen to prices should rest in large part on your view of what will happen to interest rates.
Look at a very long-term graph of real (inflation-adjusted) UK house prices relative to interest rates. You will see they move in opposite directions. Rates down, prices up. Rates up, prices down.
So, the only question you need to ask yourself before you hand over the cash for a new house (£150,000-odd will do up north, £1.5m is the minimum in central London) is just when will rates go up?
Bank of England governor Mark Carney provided us with something of an answer to this vital question this week: not yet. In the wake of the failure of his last effort at forward guidance (in which unemployment hit 7% far too fast), he is having another go.
The broad message, says JP Morgan's Stephanie Flanders, is that "UK rates will be low for some time to come and that rate rises when they do come will be gradual". Rates are also likely to stabilise at lower levels than we saw pre-crisis. So nothing to worry about then? Keep buying the houses?
Maybe. But before you rush out to call your friendly mortgage lender, it is worth remembering a few things. First, this new, more complicated form of guidance is no more predictable than the last kind in fact, given that it contains five elements, it could easily be de-railed by anything from a sudden rise in wages to a misunderstanding of the output gap (and note that no one actually understands how to calculate the output gap).
Second, the main determinant of any profits you might make is the price you pay when you buy. So if you must react to the governor's statement by rushing out to buy new buy-to-lets, make sure you at least buy cheap-ish ones. Think more Newcastle than Notting Hill.
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Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
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