Julian Knight: From buy-to-let land comes a cautionary tale
Sunday 04 November 2007
Buy-to-let investors could be forgiven for being nervous. Talk of crashes, credit crunches and mortgage repossessions rising by 50 per cent next year (see opposite) are enough to send shivers down the spine. Not only that – a recent BBC investigation showed that many of them have lost tens of thousands by buying new-build flats in places like Leeds, Liverpool and Manchester. Unable to rent out their properties, they have been forced to sell.
Egged on by property developers and self-proclaimed buy-to-let gurus, many buyers have undoubtedly had their fingers burnt. As long ago as 2004, a senior mortgage industry figure told me he feared many buy-to-let investors, usually from the south of England, were unwise to be buying new-builds in the North.
For starters, they paid over the odds. New-builds are like new cars: there is a premium to be paid – usually around 15 per cent. And if lots of investors pile into the same development then try to let out at the same time, they send local rents crashing. Finally, the wrong type of residential property has been built: one- and two-bedroom flats. Small flats are fine in London, but elsewhere in the UK the population is less transient and there is more space. In short, people don't want to live in a box. As a result, some reports suggest that more than two-thirds of flats in places like central Leeds are vacant.
The cup of human sympathy is not running over for buy-to-let investors. Many blame them for fuelling the boom and choking the chances of first-time buyers. In chatrooms on property market websites, the gloating is in full swing.
However, gloaters would be wise to stow it. The vast majority of buy-to-let investors – especially those who have stuck to the gol-den rules of buying in areas they know and researching the market – are sitting on very tidy capital growth and doing better than just covering the mortgage.
Interest rates are set to head down, not up; recent changes to capital gains tax have given a boost to landlords, and across the UK mortgage arrears among buy-to-let investors are no worse than among ordinary homeowners.
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