Buy-to-let stampede could collapse market
PUBLISHED: 13:26 01 September 2006 | UPDATED: 19:47 01 June 2010
NEW figures from the Council of Mortgage Lenders show that buy-to-let mortgages jumped by a fifth in value, or a record £17.5bn. Buy-to-let investors have responded to rising rents, in turn caused by large-scale migration from eastern European countries.
NEW figures from the Council of Mortgage Lenders show that buy-to-let mortgages jumped by a fifth in value, or a record £17.5bn.
Buy-to-let investors have responded to rising rents, in turn caused by large-scale migration from eastern European countries. Poles and the like are the new tenant class, especially in London and the south-east.
The main reason that the buy-to-let craze started a few years ago was because rents were high relative to property prices, giving nice fat yields of 10 per cent or more.
Now, the average yield in Britain is down to five per cent according to the Royal Institution of Chartered Surveyors. Once you deduct running costs, agents' fees and so on, you get to an average net yield of four per cent.
You also have to pay stamp duty and solicitors' fees on the way into the investment, and capital gains tax, estate agents' fees and more solicitors' fees when you sell.
What the average yields show is that many investors are making no income from their property investment, and are relying exclusively on capital growth to provide a return.
House prices have fallen by 13 per cent in Nottingham over the past year. Estate agents there blame the bursting of a bubble in buy-to-let.
Property prices can go down as well as up. They have fallen over the past couple of years in parts of Australia, they are falling now in Florida and many other parts of the United States, and the markets in Spain and France are starting to wobble.
Buy-to-let is an accident waiting to happen. A stampede out of it could trigger the housing market collapse that I have been predicting for the last few years.