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The days of easy B2L money are over

The buy-to-let market has been one of the great successes in the housing sector. Although it is only 10 years since the first buy-to-let mortgages appeared, the sector now accounts for some 8% of the market. But is this a bubble that is about to burst?

It’s not hard to see why the buy-to-let sector has gained a reputation as such an easy place to make money. Investors who bought when the first mortgages came onto the market would have seen the value of their property double.

This represents an impressive return on the initial investment on its own. But because an investor only needs to raise a deposit and the rest of the value of the property is accounted for by the mortgage, the rate of return on the initial investment can be phenomenal and dwarf other investment returns.

Of course, throughout this period investors will also have been enjoying income from the proceeds of the rent which will have more than covered their mortgage repayments and other costs associated with running a property.

And while the easy riches that buy-to-let provides have offered the middle classes great dinner party conversation for the past decade or so, television programmes and newspapers have also helped to perpetuate the ‘get rich easy’ buy-to-let myth.

A recent survey by the Association of Residential Letting Agents shows that investors in the buy-to-let market recognise they have made long-term investments. Many expect to keep their properties for more than 20 years and most for at least 15 years. Clearly investors are not going to be too concerned about short-term price fluctuations.

But one of the consequences of the huge popularity of buy-to-let is that in many locations oversupply means tenants have a wide range of properties to pick from.

As a consequence, rental yields have fallen to a five-year low and internet landlord forums are full of stories of landlords effectively subsidising their tenants because rental payments are lower than mortgage repayments.

Despite this, 60% of landlords are looking to buy at least one more property in the next 12 months. This is despite falling yields and rising interest rates that will see mortgage costs increase further.

Many people unjustifiably blame buy-to-let landlords for the problems that first-time buyers have, and rub their hands with glee every time problems for landlords are mooted.

With demand for rented accommodation forecast to increase, buy-to-let can still offer good returns. But the days of easy money are over and the 60% looking to buy this year will have to do their homework to ensure it pays off.


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