Is another 'buy-to-let bubble' on the way?

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There are fears that cheap mortgages and rising rents could lead to another buy-to-let bubble, only a few years after the last one burst.

While many first-time buyers struggle to save up the big deposits demanded by banks, landlords have been taking advantage of low borrowing costs and buying up properties.
The chancellor's refusal yesterday to extend the stamp duty holiday for those buying properties below £250,000 when it ends in March was a huge disappointment for first-time buyers. Property consultants CBRE estimates around 1.4 million potential first-time buyers have been unable to enter the housing market over the last decade.

Rising buy-to-let numbers

The number of buy-to-let mortgages has more than doubled since 2008 when the financial crisis struck, while average rents across the country have climbed to a record of £720 a month, according to LSL Property Services. In London, rents have topped £1,000.

Lenders are relaxing criteria for landlords again to grab a bigger share of the buy-to-let market, despite getting their fingers burnt last time. The Woolwich (owned by Barclays) is offering mortgages for landlords who have a 25% deposit rather than the 40% deposit previously required. Even Northern Rock is getting in on the game, trying to entice landlords with £750 cashback.

The risks

Experts warn landlords that buy-to-let is a risky game and should be seen as a long-term investment. House prices are still falling in many areas and have further to fall, according to some predictions. Once first-time buyers return to the market, rents could start to drop, and interest rates won't stay at their current record low forever.

Andrew Gold, chief operating officer at Mutual One, the building society auditor, said: "It's a case of when, rather than if, first-time buyers will return to the housing market. When they do - the question is whether they will burst the bubble."

David Hollingworth, associate director at broker London & Country, told the Daily Mail: "Landlords can get a great income at the moment, but with house prices falling in many parts of the country their capital growth is not so certain in the medium term.

"Also remember the costs involved with buying a property and selling a property, and the fact that your money is tied up. Being a landlord can be time consuming, unless you pay an agent, usually around 10 per cent of your rent, to manage the property for you."
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