Buy-to-let market suffers further set-backs

19 November 2007
The British property market suffered yet another blow after reports from mortgage lenders and surveyors indicated that rising interest rates, a tentative property market and a clampdown on mortgage lending have started to discourage smaller investors from the buy-to-let market; they are instead opting to sell up and cash in their investments rather than reinvesting in property.

Following the recent shake-up in the property market, the buy-to-let sector has been under increasing strain in the wake of interest rate increases yet rents have remained stagnant. Furthermore, investors have reported that their returns have been steadily falling to around five percent and in some cases, falling to below mortgage interest rates.

In addition, the credit crunch has meant tighter lending conditions as finance providers clampdown while figures from the Council of Mortgage Lenders have shown a three per cent fall in the number of buy-to-let mortgages across the second half of the year, compared to the first six months of 2007.

However market analysts are predicting a further fall in the number of recreational landlords who may own one of two properties but do not foresee a mass sell-off by professional landlords. Now it appears the only way for landlords to be able to afford to access the market is by coming up with hefty deposits.

Richard Donnell, Director of Research at Hometrack, the housing research group explains: “Amateur landlords are really the ones being squeezed, and their appetite for property investment is falling.”

Yet for the average investor, the deposits required far exceed their reach. Figures from the Royal Institution of Chartered Surveyors have shown that the deposit required for the average house sale has shot up to 30 per cent compared to 8 per cent five years ago.

Large scale urban developers have also acknowledged that the demand from buy-to-let investors as also dried up as the credit crunch bites into the property sector. Property developer, Dandra, who is currently building 3,000 homes in Manchester, has called a halt to their building work until completed units are sold.

Sales Director Hugh McGuiness comments: “We will release the next phase of our land bank sometime in the new year. It might be a little later now then it would have been. “

According to the latest poll from property website, Rightmove, the recent fall in property prices is set to continue across 2008 but the indication is that a major price correction was unlikely as long as the economy avoids a recession, as the market would be underpinned by demand continuing to outstrip supply.

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