Is the buy-to-let market ok?

As you will recall, King Canute was famous for sitting on this throne on a sandy beach and commanding the tide not to come in. I have been to London and met with followers of the King who run the now controversial buy-2-let industry. We 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.

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.

Last week, the chairman of a large developer in London warned that he felt that property was overvalued and set for a 20% fall 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 tomorrow than it is today. 

My problem is that he is a developer and that like the others who were either mortgage lenders, agents or in someway involved in the property market, who is going to want to buy a property or a mortgage from someone who thinks that prices might fall?

Remember this, having worked through three property recessions, I can tell you it has always been when everyone was utterly convinced that the future looked rosy that the tide turned and we learned words like negative equity. To command the tide not to come only looks foolish when you take an objective view. Buy-to-let is a long term investment that you should only make if you remember that property, like all other commodities, can go down as well as up!