Buy-to-let investors are getting what they deserve

Harvey Jones is delighted to see greedy, get-rich-quick landlords suffering. And boy, are they suffering...

Everybody is fascinated by the contraction of the housing market, but it hasn't shrunk as fast as buy-to-let.

Recent research shows the number of buy-to-let mortgage products has now dropped by a credit-crunching 95%.

That leaves just 213 mortgages standing out of 4,384. And you need at least a 25% deposit to get any of them.

They are also expensive. Interest rates on buy-to-let mortgages have fallen just 1.51% on average, against 2.6% for mainstream mortgages.

Which must place a lot of private landlords in an increasingly sticky position.

A squash and a squeeze.

Many will have kept their heads above water while rents were rising, but new figures from Propertyfinder.co.uk show the average rent was £819 a month in April, down from £873 one year ago. That's quite a drop.

Even worse, banks are demanding higher "rental cover" levels, insisting that rental income now covers on average 123% of the mortgage payment, up from 112% in 2007.

This is quite a squeeze, and if it continues, more buy-to-let properties could end up at the auction house, driving house prices even lower.

Big is beautiful.

Not every corner of the market is hurting. The squeeze is mostly being felt by landlords renting out flats, who now have to wait on average 63 days to find a new tenant, up from 48 days one year ago. Those renting out larger houses are enjoying stronger tenant demand and income.

Although I'm sure there are plenty of landlords who bought flats in attractive areas with high employment and good commuter links who are wondering what all the fuss is about.

I started writing about buy-to-let back in 1997, and the market subsequently enjoyed a decade of unbroken growth, but the big question was how it would react when it finally hit the buffers.

We had to wait a long time for the answer, but now we know. Pretty badly. So why has it gone so wrong?

Run them out of town.

One big reason is greed. Buy-to-let was such a phenomenon that by the end every get-rich-quick fantasist thought they could turn their hand to it.

And any market that becomes inundated with hucksters and shysters promising riches if you attend their over-priced seminar is crying out for a reality check.

I'm too lazy to be a landlord.

I'm not having a pop at buy-to-let landlords. Why, I even considered buying a property myself in 2004, or rather, hanging onto my old house when I moved and renting it out. Even my mother thought that was a good idea.

Laziness. Hatred of bothersome tenants, slack lettings agencies, disgruntled neighbours, leaking ceilings, unpaid rent, lengthy void periods and our dodgy electric shower, which I feared would fry one of my tenants.

Which means that everybody who did become a landlord had a lot more pluck, nerve, chutzpah and gumption than I did. Either that, or they didn't think through the implications.

Inevitably, some amateur landlords were a bit, well, amateurish. The press has been full of stories of Glasgow cab drivers who geared themselves to the max and leapt onto the bandwagon even when the wheels were rattling loose.

The good guys.

I'm also aware that plenty were highly professional, choosing their properties carefully, taking on modest gearing, planning carefully for void periods, and making sure rental income safely covered their mortgage repayments.

Many are now taking the opportunity to stock up their portfolios with cut-price properties, reaping the rewards of their hard work and careful planning. This might even help soften the house price crash.

Buy-to-live.

I extend my sympathies to any landlord reading this who has been savaged by the boom (with the exception of Grant Bovey and Anthea Turner).

But I instinctively have less sympathy for a landlord who gets repossessed than a homeowner.

That's because they were buying an investment, rather than a place to live, and should recognise and accept the risks involved. They hoped to cash in on the boom, and can't grumble if they get cashed out in the bust.

And I was never comfortable with the ever-growing legion of homeowners who used their unearned spoils from the housing boom to muscle out first-time buyers, and keep them trapped in the housing market.

That created a vicious circle for first-time buyers, one that I am delighted has been broken.

Yes, a healthy lettings market is important, and buy-to-let has delivered that, but so is keeping alive the aspiration to own your own home.

I'm a celebrity landlord get me out of here!

Buy-to-let is far from dead, and nor should it be. But mercifully, the boom is over. Many of the fast-buck merchants are bankrupt. Although some, worryingly, are setting up new property empires on the ashes of the old ones (and the bones of their creditors).

But they should remember that once that old boom-bust routine has been played out, it takes a long, long time before the band strikes up again.

The good news is that private landlords who did their sums carefully and committed themselves to the market for the long-term are still there. Tortoise beats hare once again - yay!

And the even better news is that first-time buyer affordability has more than trebled since mid-2007, according to Halifax.

The balance of power between buy-to-let investors and first-time buyers had unfairly shifted in favour of the former. Let's hope the relationship will be a bit more equitable - and sustainable - in future.

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