Don't bank on a buy-to-let holiday home

As signs multiply that the buy-to-let market is crumbling, leaders of Britain's letting agents warned this week that investors are being sidetracked into unsuitable deals involving holiday homes and speculative buying off-plan.

As signs multiply that the buy-to-let market is crumbling, leaders of Britain's letting agents warned this week that investors are being sidetracked into unsuitable deals involving holiday homes and speculative buying off-plan.

Robert Jordan, president of the Association of Residential Letting Agents (Arla), said: "Super house inflation has brought about a secondary market that purports to be buy-to-let and probably uses mortgages from some lenders to fund these activities, including off-plan buying where the purchaser is speculating on the increase in house prices. Sometimes these propositions include a guaranteed rent, but the public should be aware that these guarantees are no more than a delayed discount and no guarantee of the real rent that can be achieved, or that the property can be let at all. Buy to let is about fair returns and quality accommodation, not get-rich-quick schemes."

The Costa del Sol is a forest of cranes and new building, Mr Jordan said, because the phrase "buy-to-let" is incorrectly being used to sell holiday homes. "Letting these properties is, at best, a way of subsidising holidays. You may get a let or two but the competition is fierce, so don't bank on it. Holiday homes in the UK are not buy-to-let either, nor are rooms for sale in a hotel.

John Heron, chairman of the Arla Buy to Let Panel and managing director of Paragon Mortgages, warned that buy-to-let involved a long-term commitment to tenants that was not dependent on house-price inflation. He said: "In contrast, property speculators buy and sell quickly, are price-inflation driven, have no real interest in tenants and should not be given access to buy-to-let mortgages."

The latest Arla survey of the market shows that the average weighted rental return on a house is down from 5.1 per cent to 5 per cent since June. Returns on flats have fallen from 5.3 per cent to 5.2 per cent in the same period.

The Arla panel of lenders - Birmingham Midshires, GMAC Residential Funding, NatWest Mortgages Services, Paragon and The Mortgage Business - account for 40 per cent of buy-to-let mortgage lending. Arla represents 1,500 letting and residential management offices. There are 2.5m homes in the private rented sector, of which 400,000 were financed by buy-to-let mortgages, according to the Council of Mortgage Lenders.