Buy-to-lets in general have squeezed the property market in general, explaining the governments desire to regulate the sector. A select committee of Treasury MPs has recently expressed concern that buy-to-lets have made it much more difficult for first-time buyers by squeezing the supply of available housing, and pushing property values up higher in the process. The higher interest rates and minimum deposits, makes it almost impossible, even for families with high earnings, to secure a first mortgage. Many disappointed would-be buyers complain that this vicious circle keeps them out of the property market, unable to buy a mortgage, forcing them into the position where they are have no choice but to rent, and in so doing, pay off somebody else’s mortgage that was able to secure a loan. Buy-to-let landlords are better placed for the shrinking lending market, banks are increasingly looking for collateral, and are increasing the minimum-security deposit, something an existing landlord is better positioned to provide. With only 80,000 new homes built per year, and rents going through the roof with the demographic changes in the country, its not surprising that 60% of existing landlords plan to increase their holdings. However, is now really a good time to invest in real estate? With interest rates expected to rise in 2017, many new landlords risk seeing a negative cash flow, with mortgage costs exceeding their rental income. That is likely to cause a sell-off, at least amongst small landlords that won’t be able to absorb the cost. And even those that try to ride the storm will feel the squeeze. Lets take a look at a simple example. Imagine that you have recently entered the property market, buying a house for £100,000. The bank has asked for a £20,000 deposit, and issued a £80,000 loan. Imagine now the scenario above, where interests rates rise, and property values drop 10%. You will immediately have taken a 50% loss of your original money.
Posted on: Thu, 27 Nov 2014 09:25:10 +0000
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