Buy-to-let is not dead - just much tougher by Finance News Bulletin

Published: 14/12/07

When the dotcom boom fell separately at the beginning of the millennium, a flood of cash from private investors poured into property'It has become a buyers' market again and that is high-quality news,' says long-term landlord Jeremy Kent-BaguleyIn a tough market, it's vital to make sure your property can be a sound asset >> Take the buy-to-let testDaily Mail investigates: Buy-to-let schemes have left thousands of people out of pouch > Buy-to-let nightmareBritish mortgage lenders desire us to remove our new house price collide calculator

Read more The Editor's BlogDisillusioned by boom and bust shares and encouraged by astound bottom interest rates, thousands hurried to climb aboard the buy-to-let bandwagon

Many have made a fortune, but the credit chomp threatens the division Financial Mail examines what the future holdsBuy-to-let is not dead, whatever the headlines say about lessening property values and stricken amateur investorsThat is the loud message from landlord lenders, buy-to-let mortgage brokers and, fatefully, landlords themselves However, there are evils

Jeremy Kent-Baguley, 41, has been a landlord since 1986 For the past 12 years he has done nothing but manage his properties, all of which are two-up, two-down Victorian terraced houses in Banbury, Oxfordshire, Oxford itself and Rugby, WarwickshireAnd he reckons that forecast are looking bright right now, for the first occasion in years, because the housing market is weakening'I wouldn't say prices are actually lessening in these areas,' he says

'But it has become a buyers' market again and that is good information I haven't bought any property for the best part of a year There was nothing that worked financiallyThe golden rule for me is that it has to stack up and until lately it didn't

' By 'stacking up' he means that the rent from the property has to cover the cost of the mortgage, characteristically 85% of the possessions's valueRising possessions prices and mortgage rates have made that difficult for some occasion Though rents have risen, pushed up in part by demand from migrants and young personnel who cannot afford to pay money for, they have not kept pace with mortgage costsBut with a undecided housing market, opportunities are back, says Jeremy

'The marketplace's as flat as a pancake I know that because for the first time in ages I have agents buzzing me up asking me if I'd be interested in properties on their books I can go in and make low but serious offers and they might get conventional,' he saysLahrie Mohammed, a former shopkeeper from Sri Lanka, is raising money to add to his collection of 150 propertiesOthers inform similar stories

Experienced landlord Lahrie Mohammed, 40, who in February told monetary Mail that he was struggling to find appropriate properties in his chosen area of east London, is much better-off now'Prices are not falling quite yet and the penny has still to drop with vendors, but the market is altering,' he says 'We've had signs of downturns in prices before, but they refuge't materialised This time it's for real

'And Lahrie, a former retailer from Sri Lanka, is raising cash to add to his portfolio of 150 properties He says spring, when normal seasonal housing dealings resume, will unearth genuine weaknessLee Grandin of Landlord Mortgages, the biggest buy-to-let brokerage, says that for the history two years most of his customers have simply been remortgaging to manage their costs, rather than to release evenhandedness to fund new purchases'But we're seeing a change now, with more money pending out to buy novel properties,' he says

He reports one client who this month finished the £150,000 purchase of a repossessed possessions that last year had been sold for £220,000'Experienced landlords who have been inactive for some time and who are session on large amounts of equity are waking up to this sort of opportunity,' he saysHowever, it is a dissimilar story with amateur investors who poured cash into heavily marketed novel properties, often in large developments in regenerated city centresThere is evidence that prices here are plummeting and there are growing fears that many properties were overrated in the first place

most horrible of all, rents in this market are weak as clusters of alike properties, usually two-bedroom flats, are available for job simultaneouslyDevelopers have warned that they are struggling to put up for sale new flats and are having to cut prices This is not helping existing owners of similar homes As monetary letters has widely reported, landlords in this market have been badly burnt financially

Grandin says: 'beginner investors in new-build flats are going to be squeezed Their hire incomes will suffer and their assets values are also likely to be down It's not a good place to be'In a certain sign of darkness, banks and building societies are also pulling back from lending on this type of property

Britannia structure Society's landlord lender derivative Platform last month tightened the criteria on new-build lending Since September, UCB Homeloans, part of Nationwide Building civilization, has refused to lend to landlords of novel propertiesAnd auctioneers are reporting greater than before numbers of these properties on their books as lenders take control of properties The credit crunch that wrecked Northern Rock and sent spasms through the whole mortgage industry has hit property-owner lending

Many specialist lenders, including GMAC, Kensington and Platform, have struggled to raise cash to lend to landlordsProperty sceptics are predicting a serious slump in the housing marketplace, but will there be a crashShares in Paragon, the quoted lending business that lends only to landlords, have slumped This is ironic because, as one of the most reliable sources of data on the buy-to-let manufacturing, the information from model's customers is positive

model calculates monthly indices showing returns generated by its clientele, most of whom are professional landlords with more than ten properties to allow According to Paragon, average rents are up 7% in 12 months But yields - rental returns relative to property principles - have been under pressure from rising house pricesThey are averaging 6%, model says, but where prices are feeble, such as the West Midlands or Yorkshire, they are rising powerfully

I am confused by BLT calculations Only new flats are under pressure Then we have a BLT trade at a lower price than the last person I assume then it was now bought at the "correct" height

But, if the market is going nowhere where is the gain comingOthers are seeing trade opportunities as they can ask for less on the asking price But in London (a safe refuge for BLT) prices (even if asking prices fall) are still too high i

e rental fee not covering interest and no capital appreciation by eg

£50,000 on a deposit and so even if the home price rises by speak 2% they make speak £6,000 Such leverage only works in a rising marketplaceLeading on from that, it is lazy investing at best foolishness if the assumption is for no price growth "but they are in it for the extended haul"), as without that leverage gain they are using their equity incompetently I suspect few economists did BLT as they in fact looked at the numbers

Ponzi schemes and liquidity driven bubbles rely on ignorance and personalitySelect a loan term 12 months (1 day 24 months (2 years) 36 months (3 existence 48 months (4 existence 60 months (5 existence 72 months (6 existence 84 months (7 existence 96 months (8 existence 108 months (9 existence 120 months (10 existencePlease choose a type of insurance Life insurance Home and contents Car Breakdown armed forces Health - medical Health - dental Travel

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