Investors thinking of entering the UK's buy-to-let housing market have been warned that "the boom years are over" by an influential research group.

The number of buy-to-let mortgages rose by 50% in 2001 as people looked to profit from soaring house prices and growing demand for rented property, according to Datamonitor.

It is a product only for those with a long-term outlook who are willing to do their research

Datamonitor

Altogether, loans worth �6.6bn were taken out for buy-to-let mortgages last year.

Loans to buy-to-let investors have more than doubled from �3bn in 1999 and accounted for 4% of all mortgage advances in 2001.

Interest rates

But Datamonitor says the buy-to-let market is set to cool as some of the factors that produced the boom go into reverse.

In particular, economists expect the Bank of England to raise interest rates - currently at a 40-year low - later this year.

Better returns on stock market investments and the prospect of new rules to give tenants more rights could also dampen investor's enthusiasm for buy-to-let.

"With rental demand slowing, equities on the road to recovery and interest rates set for modest increases, growth in buy-to-let will slow," said Datamonitor.

It expects the market to grow 4.7% a year between now and 2006.

Lenders compete

"While for some investors buy-to-let still offers good returns... it is a product only for those with a long-term outlook who are willing to do their research," cautioned Datamonitor.

However, competition between mortgage lenders to woo buy-to-let investors is hotting up, bringing "lower prices, better terms [and] greater flexibility" to mortgage deals.

More than 60% of mortgage lenders now offer buy-to-let products compared with 30% in 1998.