As you will recall, the King ordered a new suit of clothes which despite it’s apparent shortcomings his loyal followers agreed was the finest they had ever seen. In London at the Buy-to-let Forum organised by industry guru John Wriglesworth, followers of the King who appear to run the controversial buy-2-let industry discussed the impact of B2L on first time buyers, the role of property ‘Investment’ clubs and the outlook for the market both in the UK and abroad. The outlook, they said looked great!
Over 300,000 mortgages for ‘investment’ purposes were offered last year and many now consider property an attractive alternative to a conventional pension. With capital values doubling over the past five years, it has been easy to persuade the public that investing in property was a “no brainer” and many have piled in.
Speaking after the event, I said “Last week, the chairman of a large private property company in London warned that he felt that property was overvalued by 20% and with net returns (the rent as a percentage of the buildings’ value) down to 3% in many places, putting the money in the bank at 5% is an attractive, risk-free alternative.
“The delegates were convinced that the market would flat-line at worst but one panelist actually ‘guaranteed’ that property would be worth more next year than it is today.
“My problem is that this chap is a developer and like the other mortgage companies, agents and speculators represented at the event, none could afford to say that the outlook might be poor. Who wants to buy a property or a mortgage from someone who thinks that the market might fall?
“As we have seen in the US where people who over-stretched themselves have brought about a crisis in parts of the wider financial markets, it is usually when everyone is saying that the future looks rosy that the tide turns and we learn words like “negative equity”. As the little girl in the story proved, just because everyone else agrees, doesn’t make them right.
Buy-to-let is a long term investment that one should only make if you remember that property, like all other commodities, can go down as well as up!