NAOMI CAINE & SIMON BAIN

The new pension freedoms and record Scottish rent levels are fuelling a buy-to-let boom.

An estimated 60,000 savers have withdrawn around £1 billion from pensions since April, with many more expected to cash in.

Charlotte Nelson, finance expert at Moneyfacts, says: "Buy-to-let providers are seeking to capitalise on this new pool of cash and are now offering more deals than ever to first-time landlords."

She adds: "Since the pensions revolution the number of buy-to-let deals available to first-time landlords has increased, rising by 13per cent from 574 in April to 664 today. This represents a 40per cent increase on the 396 deals available two years ago, proving that the buy-to-let market is flourishing for new and old borrowers alike."

But the chancellor may be tempted to tighten tax breaks on the sector in next week's Budget, following a Bank of England warning on Thursday that expansion of the buy-to-let market could put the financial stability of the UK at risk when interest rates rise.

The BoE warned: "Buy-to-let borrowers are potentially more vulnerable to rising interest rates because loans are more likely to be interest only and extended on floating-rate terms, and affordability tends to be tested at lower stressed interest rates than owner-occupied lending."

Meanwhile rent rises in Scotland have started to pick up pace and in many areas reached a new high, according to the latest Scottish index from Your Move.

The average residential rent across Scotland has hit £539 a month, matching the peak set in November 2014, following a 1.6per cent year on year rise.

Rents in Glasgow and Clyde have experienced the greatest annual rise, up five per cent.

The average total annual return on a buy-to-let investment in Scotland stands at 15.2per cent, double the figure last year. It takes into account property price growth and void periods between tenants, but does not include mortgage payments or maintenance costs.

Brian Moran, area lettings director at Your Move, says: "Landlord returns have doubled in the past year. But it's worth remembering that we're experiencing some extraordinary behaviour in the Scottish housing market at the moment. House prices in Scotland are currently rising twice as fast as those in the rest of England and Wales, as a result of a short-term shot of activity before the new transaction tax was enforced. Gross yields and regular rental income act as a fairer barometer, and these are both cruising along on an even keel."

The average gross yield - the rental income as a percentage of the house price - on a rental property in Scotland is 3.7per cent, a drop from 4.1per cent in April 2014.

Mr Moran says: "Slow and steady rent rises are amounting to sturdy rental income. With economic conditions stacked in their favour, the only factor that may dissuade further investment from landlords into the sector is the threat of restrictive rent controls."

In May an umbrella organisation representing the private rented sector petitioned the Scottish Parliament not to introduce rent controls, in response to a government consultation.

Industry veteran David Alexander, principal of letting agent DJ Alexander, commented: "Government interference in setting rental levels would turn out to be as much anti-tenant as anti-landlord. Potential landlords will be scared off from entering the sector while many existing ones are likely to disinvest, which can only lead to a reduction in stock."

Mr Alexander said the sector was also concerned at proposals for overt 'letting controls', including preventing a landlord repossessing a property unless he or she wished to sell it or make it their own home.

Most buy-to-let lenders insist on a deposit of at least 25per cent, though a handful offer loans with a 20per cent or even 15per cent deposit. But the best deals are reserved for landlords who can put down at least 30per cent, if not 40per cent.

David Hollingworth of London & Country Mortgages, a broker, says: "The buy-to-let mortgage market is extremely competitive and as a result mortgage rates are very low."

For example, BM Solutions has a two-year fixed rate at 2.09per cent, with a minimum 40per cent deposit and a 2per cent fee. Accord offers a five-year fix with a rate of 3.19per cent. Again, the minimum deposit is 40per cent, but the fee is a hefty £2625. If you can only afford a 25per cent deposit, you can take out a five-year fix with the same lender at 3.74per cent with same fee.

Mortgage Trust offers a five-year fix at 4.95per cent with a 20per cent deposit and a £150 fee.

Most landlords opt for fixed mortgages but if you prefer a variable rate, it's worth having a look at the deal from Coventry building society at 2.69per cent. The minimum deposit is 35per cent and the fee is £1999.

Bear in mind that lenders insist that the rent covers the mortgage interest by at least 125per cent. In other words, if your mortgage interest is £100, the rent must be at least £125. They often calculate the mortgage interest at a higher rate, too. Virgin Money, for example, bases the calculation on a mortgage interest rate of 5.99per cent.

Of course, rates won't necessarily stay low indefinitely - hence the Bank of England's warning.

David Carmichael, director at Taylor Carmichael Financial Services, says: "Rates are exceptional at present and it is generally accepted they won't last forever at such low levels, with opinions varying between rises this year and early to mid 2016."