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Buy
to Let
A problem waiting to happen?
Whilst the pundits’ pontificated
about the merits or disasters in this market, Mr Average Investor
cheesed off
with a stock market that in the main trades sideways followed the
herd instinct and piled in the glamour market of the new century.
‘
Buy to let’ with an investment size of about £3Bn in 1998
has grown to £20Bn+ at the present time and now represents about
7% of the total housing market. Best guesses are that it will slow
to 6% between 2004 and 2008.
Worse still, the housing market performance
rests on the ‘buy
to let’ investors, who make up about 15% of all housing transactions,
thus distorting the view of the traditional housing market and probably
fuelling inflationary house prices.
But the real bad news is that after costs,
the yield on buy to lets is about 1%; where there is oversupply and
letting voids, the position
is much worse. No wonder investors are starting to take profits when
there is little prospect of capital growth – and finding they
can get better returns with a building society or bank deposit.
So where will it all end? There is an enormous amount of property in
the planning to construction pipeline, on top of which there are those
early investors now getting out. Banks are turning off the mortgage
tap in selected markets and the rise in interest rates and the fear
of a major hike in council tax is starting to dampen demand.
But if a significant overhang in the market
emerges and developers try to take a quick exit by discounting prices
then the old bogey – negative
equity – will emerge and then the tears start.
So what does an investor do when he has a negative equity and cannot
make the scheduled repayments on his loan?
Banks gave up debt forgiveness some years ago,
and for some the new bankruptcy laws may look a tidy and easy option.
Our advice is to take
professional advice sooner than later if you anticipate problems with
your property investments – doing nothing in this situation is
not an option.
14.12.04
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