The buy-to-let boom of recent years petered out somewhat in the closing months of 2007 - and there's a mixed outlook for the market going forward. According to the latest Nationwide analysis:
"While new demand from buy-to-let investors is likely to weaken in 2008, we do not believe that the long-term fundamentals of buy-to-let are necessarily as poor as recent commentary may suggest."
Buy-to-let backlash
The link between property investors and rising prices for first-time buyers has made the buy-to-let industry unpopular with some. UpMyStreet user Demon from Havering says:
"I am a leasehold property agent and I have seen a MASSIVE decline in young single people or couples buying flats because the ones that are affordable are snapped up by wannabe property investors to let...".
Market cools as house prices fall
As property prices cool, so too has the demand for investment properties. Because rents haven't risen at the same rate as house prices, many investors have relied on the value of their property increasing to make a profit rather than making a return through rental yield. As such, fewer new buy-to-let investors are expected this year.
Rents increasing
While landlords may see the value of their property dropping, rental prices are still steadily increasing - and could rise at an even faster rate in a slower buying market, if demand for rented properties grows. According to Paragon Mortgages, rents increased by 19% in 2007 to an all-time high, with the average rent at £965 a month. This should help landlords recoup a good proportion of their lost capital.
Short-term planning
Take a considered, well-researched approach if you're starting or extending your property portfolio. In a market where house prices may fall, maximise your profit margins in different ways. Invest in properties you can add value to by improving - auctions are a good source of bargain houses that need doing up. Identify and invest in property situated in up-and-coming areas rather in than fully matured markets.
Long-term investment
Martin Gahbauer, senior economist at Nationwide, believes buy-to-let is a good long-term investment.
"A property investor planning to hold the investment over a long period will benefit from future rental growth and is in a better position to ride out temporary periods of weak capital gains."
How you could be affected:
› Renters
While new demand from buy-to-let investors is likely to weaken in 2008, we do not believe that the long-term fundamentals of buy-to-let are necessarily as poor as recent commentary may suggest.
Martin Gahbauer, senior economist, Nationwide
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Your comments (3)
Landlord (Brent), on 31/03/2008 at 01:35
It has always been my aim to make my tenants as welcome as possible - these maybe my houses but they are their homes. A lower rent and a friendly tenant allows for better upkeep, longer term stay and shorter vacent periods. The Landlord benefits, the tenant benefits. Landlords detmined to maximise returns and minimize input find themselves with resentful tenants, poorly maintained houses and long vacent periods. At present house prices are too high to buy unless that is you have a sufficently big deposit to make it worth while. My advise ( a ) if you want to buy, wait 12 months and then re-access ( b ) if you are about to buy ensure that you have a good deposit/mortgage ratio - one that will allow a good 10-20% drop in house prices and ( c ) if you have bought, a lower than market rent - say 90 % of market to ensure longer stays. It's the cash flow that is important, get that right, and the market will in time sort out itself ... or at least let us hope so.
marcus (Blaenau Gwent), on 13/03/2008 at 20:50
buy to let should always be looked upon as a long term investment.prices historically rise by 7% per year so recent double digit increases are not sustainable so short term expect prices to stagnate or even fall,however with a long term view this will correct itself back to the 7 % average over time so investors dont dispair but be patient and the rewards will come.dont forget if youm have invested £15000 as adeposit on a £100,000 house that 7% appreciation on your asset is really a is really a 40% increase on your cash investment,even if prices only rise by say 2% per annum over the next 5years that is still an annual increase of 12% on tyour actual cash outlay,assuming a 15% deposit on your property,you wont get that return in any saving scheme.
Ruth (Camden), on 12/02/2008 at 15:27
Would agree this looks sensible. The problem is when you have a tenant who pays up and looks after the place, you are very reluctant to put the rent up in case they leave. We have all been left with non payers who just weren't worth pursuing to get any rent. I normally wait till they leave before putting up the rent so this relies on capital appreciation.
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