David Prosser: The buy-to-let dream has turned into a nightmare

Pop. There goes another housing bubble. Two years ago, you could barely move without bumping into someone who'd given up on pension plans and other conventional ways to save for old age in favour of bricks and mortar. The buy-to-let boom was the single most important contributory factor to the meteoric rise in UK house prices. Now the hopes of several million savers are being crushed by the collapse of the market.

Bad enough that the value of property has fallen by at least 15 per cent since the peak and that housing experts predict plenty more where that came from. Now the Royal Institution of Chartered Surveyors says that rents have begun falling too.

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It's not difficult to see why. Anyone considering selling a property in the current market is bound to be thinking twice. Many have instead decided to let their houses and flats. The market is saturated, with Rics reporting new instructions to residential landlords now outstripping inquiries from tenants looking for somewhere to rent. More supply than demand equals falling rents.

This is an alarming development for buy-to-let investors, whether they're professionals with a portfolio of assets or amateurs with just a single rental property to their name. Until now, those investing for old age could have taken comfort from the hope that property prices might recover in time for their retirement. But falling rents will make it harder – and in some cases impossible – for landlords to cover the cost of their mortgage repayments. Many will be forced to sell loss-making assets into a falling market.

It's an appalling prospect, especially for those who bought at the top. The peak of the buy-to-let boom, naturally enough, coincided with a period when short-term mortgage deals were at their cheapest. Now those deals are coming to an end, the best deals are twice as expensive, assuming, that is, lenders can be persuaded to part with their cash.

To put the dilemma at its starkest, the cost of servicing mortgage debt is rising sharply at the same time as rents are starting to fall. And the underlying asset is in many cases worth less than savers paid for it.

It's a natural instinct to be less than sympathetic towards people who have overstretched themselves without thinking through the consequences. But in many instances, these really are cases where unscrupulous property professionals have misbehaved.

Think of the small legion of property "investment clubs" that have grown rich earning finders' fees selling properties to landlords on the basis that they couldn't possibly lose. Think of the unscrupulous – and in some cases outright fraudulent – developers that have flooded the market with city-centre flats for which there was never going to be sufficient demand and which have often been deliberately overvalued. And think about the mortgage lenders that were falling over themselves to snap up chunks of the lucrative buy-to-let mortgage market.