Sandy Murray BBC News Online Scotland

In a period of low interest rates, buying property to rent out has appeared to be a sure-fire winner.

But now that the cost of borrowing has started to rise, some people will have to think carefully about their role as landlords.

Housing has become a fashionable investment

Since 1998, the number of mortgages classified as buy-to-let has increased by over 50% each year.

While the overall number of homes for rent has shown no significant rise during this period, the number of small-scale landlords has risen while some larger investors have bailed out of the market.

In Scotland, there have been indications that many of the new amateur investors have offered properties for let which struggle to find tenants.

Empty houses

Ronnie Carpenter is managing director of CIB Properties, which provides a lettings and management service for private landlords in Scotland.

He said: "The market for the last two years has definitely suffered from oversupply.

"There's a lot more empty houses and the rents have almost gone into reverse."

Mr Carpenter believes that most landlords who have invested wisely will be able to absorb higher interest rates.

But he says there are three different groups of property owner in the rental market, and each will feel the effects differently.

"There are people who see it as a business," he explained, "maybe self-employed people who've done well and see it as another wing to their portfolio.

"Then there are younger people who see no future in pensions.

"At the other end people who are in their 50s, 60s, who have invested wisely over the years, now they're buying a flat to let out as a good means of a pension."

Careful selection

Stockbroker Tony Craze, perhaps surprisingly for someone who advises people on the buying of shares, remains enthusiastic for the right kind of property investment.

He said: "I have to say that I still believe that property is a first-class investment.

Poor returns from shares pushed many investors towards property

"Unless interest rates go up to 6% or 7%, I don't see a serious impact on housing."

But Mr Craze, whose approach to investment is based on stock-picking - the careful selection of shares - thinks houses should be viewed in the same way.

He said: "I would treat property exactly as I would treat equities.

"If you get the right property in the right place, as they say it's about three things: location, location, location."

Relief for business

The latest rise in interest rates was widely expected.

Bob Leitch, Director of the Scottish Chambers of Commerce, said: "Our quarterly business survey has shown an upward trend in the Scottish economy of late so we are relieved that the increase in interest rates is not larger."

CBI Scotland's Director Iain McMillan agreed: "As long as this increase is only a small change to interest rate levels... business in Scotland will understand the Bank of England's decision."

And Bill Anderson of the Forum of Private Business in Scotland agreed that any further increases could prove to be harmful to the economy.

He said: "There are some welcome signs that manufacturing is on an upturn, so we don't want to nip these tender shoots of recovery."

But the strength of the housing market is one of the main considerations behind the moves already made by the Bank of England's Monetary Policy Committee towards higher interest rates, and may eventually override worries about the wider economy.

Some economists believe it is impossible to rule out the possibility of a major hike in the cost of borrowing, with a subsequent downward correction in house prices.

Interest hawks

Investec chief economist Philip Shaw expects interest rates of 5% early next year, although he agreed there was a risk that the Bank of England may lose patience with the house price boom.

He said: "Although the Bank has made it abundantly clear that it is not targeting house price inflation, it must be feeling increasingly concerned that the risks of an abrupt correction in house prices are mounting.

House prices have been rising alarmingly fast

"The hawks on the committee may now be approaching the stage where they believe that raising rates gradually is not working and that it may be time to lift rates more frequently to bring about a speedier adjustment in the economy."

In such a situation, with the cost of borrowing rising and the value of property falling back, some of those who rushed into buy-to-let may make an equally sharp exit.

Ronnie Carpenter accepts that there may be a readjustment in the letting market.

He explained: "Younger people, if they're servicing a mortgage on their own property as well as a buy-to-rent mortgage, then obviously they're going to feel the pinch more when they end up having two payment increases.