The new build market has seen some increased activity with prices rising to reflect increased demand. For October 2009 new build prices were reported to have increased by 1.3%, but is this a sign of recovery?

Looking at other data sources suggest there is some cause for optimism with mortgage approvals for buy-to-let investors increasing. In Q3 of 2009 the number of buy-to-let mortgages approved totalled 23,700, and increase of 9.7% over Q2. That said mortgages approved are still at historically low levels.

The key indicator for buy-to-let mortgage approvals is investor sentiment, the increase in investment activity for the buy-to-let market suggest that investors are starting to see the residential property market as a good place to invest.

Whilst these are positive signs there is also reason for continued caution. We have yet to see the economic effects of “budget cuts” after the 2010 general election. An increasing number of commentators are predicting a slump in 2010. This sentiment is captured in a statement from Howard Archer, an economist at HIS Global Insight: “… the firming of housing prices seen since March / April will fizzle out before long and house prices will suffer a relapse in 2010.”

Our view is that as an investor focus on the net rental yield from a property to generate cash flow in excess of the mortgage costs. As long as a property is making a rental profit then you can ride out fluctuations in property prices. If you are buying for capital gain, then the signals suggest extreme caution for 2010.