Nationwide warns buy-to-let bubble may be about to burst

The buy-to-let housing boom may be about to come to an end, one of the UK's largest mortgage lenders warned yesterday.

Homebuyers should think twice before jumping on the bandwagon, according to UCB Home Loans, a subsidiary of Nationwide Building Society.

Charles Reed, the managing director of UCB, said buy-to-let – where people purchase a second home in order to benefit from a rental income and the rising property price – was no longer an easy way to make a "quick buck".

"Buy-to-let should not be viewed as a get-rich-quick opportunity, where big profits can be made from rapidly escalating house prices," he said.

"When interest rates begin to creep upwards again and housing market inflation cools, we may see a big change in the buy-to-let market."

He said landlords were feeling the pinch from a combination of falling rents and longer void periods, when the properties are on the rental market but unlet.

Mr Reed said: "Some landlords may consider putting their properties up for sale, in an effort to make a capital gain at the peak of the market. However, the costs of selling and capital gains tax will eat into much of the increase.

"I think by next year we will begin to see fewer people entering the market as landlords," Mr Reed forecast.

He said the greatest pressure on landlords was in London where a flood of buy-to-let investors, combined with slack demand for corporate lets thanks to the economic slowdown, had driven rents down. According to figures from the estate agency FPD Savills, an average central London property yields 3.1 per cent a year in rent, compared with a national average of 6.2 per cent.

"Rents have been falling in parts of London, where too many landlords are chasing too few tenants," Mr Reed said.

With the London market flooded and battered by redundancies in the City, UCB said investors were looking elsewhere for profits, with Huntingdon, Peterborough, Manchester, Lincoln, Leicester, Ipswich and Brighton proving to be popular choices.

He said the oversupply of rental property in parts of London would begin to show up in other areas of the country, leading to a "gradual cooling" in demand as property prices rose more slowly.