Irish property investors have come a long way in a short time. From a position where they were snapping up apartments in Dublin, some have graduated to the point where they are now investing in commercial property in Britain, often as part of a syndicate.

Following the introduction of the Bacon measures last year, some of the many investors driven out of the residential property market have turned instead to commercial property. However, a lack of supply in this area and stiff competition among those with between £1 million and £2 million to invest have led to rising prices for such properties in the Irish market and encouraged some investors to look further afield.

"Yields on property are low, it's hard to get value which has made it logical to look to Britain," says one industry source. Attracted by the higher yields available in the UK, and particularly London, more and more Irish investors are seeking opportunities there and some estate agents report more demand than they can actually meet.

"We have a lot of people looking to the whole of the UK in both the residential and commercial areas," says Denise Murphy, associate director with Hamilton Osborne King, "and England doesn't end with London. People are also looking at cities like Leeds and Manchester and at Glasgow and Edinburgh in Scotland."

Ms Murphy says clients have bought properties with yields ranging from 5.5 per cent to 9 per cent, depending on the property and its location, although the average yield on commercial property in Britain is around 7.5 per cent, well ahead of what is available in the Republic.

The similarities between the British and Irish legal systems, particularly in terms of the landlord-tenant structure and the availability of long-term leases, also help to make it an attractive and secure market for Irish investors.

"The UK is very much in vogue," says John Reynolds, executive director of banking with Irish Intercontinental Bank (IIB).

Generally, there are two patterns to investment in the UK. Banks and brokers are increasingly teaming up with firms of estate agents who identify an investment portfolio of properties. The investors, often in a consortium or syndicate, put up part of the money while the bank provides the balance of the funding for the investors.

However, Mr Reynolds says a significant number of IIB's clients are doing their own thing in Britain. "A lot of them are experienced property people who go to the UK and identify investment property there," he says.

Many of those buying in Britain take out sterling loans in a bid to match their income and their liabilities despite the higher level of UK interest rates.

However, some investors do borrow at lower Irish rates although this involves an exchange rate risk. Typically, those assuming this risk would tend to opt for fixed rates rather than leave themselves exposed to the interest rate risk involved in a variable rate. Most of the large Irish banks will provide sterling finance as will some of the British building societies although banks in Britain tend to shy away from lending in this area, industry sources say.

"Banks in the UK have sore memories of the collapse in prices over there. If there isn't a lease in place for the life of the loan, they tend not to get involved," says Alex Brett, manager of property finance with Lombard & Ulster, a subsidiary of Ulster Bank.

The one-year cost of sterling funds is currently around 5.25 per cent and most banks add a margin of 1 to 2 per cent on top of this, depending on the client, the size of the loan and the quality of the deal. "The margin depends on a number of factors including the perceived risk in the deal and the amount of work and effort involved," Mr Brett says.

Generally, the margin charged on loans of between £100,000 and £1 million is closer to 2 than 1 per cent. But there are other factors which are often of more concern to some investors, particularly the larger ones with £3 million to £5 million and upward to invest.

"Many investors are more focused on the period of finance and the extent of the leverage than the cost of money. They are not going to argue over a quarter of a percentage point," Mr Reynolds says.

British interest rates have been falling steadily in recent months. The UK base rate now stands at 5.5 per cent, well down from last year's levels, and most economists believe rates have further to fall. As a result, many investors have been holding off locking into long-term fixed rates, opting instead for short-term fixed or variable rate loans.

However, some of those borrowing larger sums are not prepared to take the risk of waiting for what could turn out to be a small interest rate gain.

In terms of leverage, banks generally lend from two-thirds up to a maximum of 80 per cent of the value of the investment although 80 per cent is considered high and would usually apply to property with very good tenants or the prospect of a rent rise, bankers say.

While the numbers may seem attractive, advisers urge investors to be cautious. They should always remember the old maxim - location, location and location - and not allow themselves to be seduced by yields, particularly in London, they say.

"London is very big and while there is a huge amount of good London, there is also a huge amount of bad London," one estate agent says. "More than in Dublin, you could find yourself investing in one street and a few blocks away is a street with fundamentally different property characteristics."