What next for buy-to-let investors?

by Christopher Evans

Those considering investing in property for buy-to-let purposes, or those thinking about expanding their property portfolios, have been bombarded with somewhat conflicting messages of late.

Difficulty in obtaining credit continues as the economic downturn grips the world, while UK inflation rose to its highest level in 16 years in September.

And added to these pressures was the Daily Telegraph's statement at the beginning of this month that the buy-to-let sector "is in crisis", as its survey found that property values have been shrinking.

But last week the Young Group released its own study, arguing that rumours of buy-to-let's demise have been greatly exaggerated.

It showed that 98 per cent of investors are planning to hang on to their property portfolios for the next 12 months, with one-fifth thinking as far ahead as 15 years.

Chief executive of the body Neil Young noted that this is because of the long-term nature of the investments, stating: "To a certain extent, short term market fluctuations aren't a concern to most investors as long as their property is financed appropriately and paying for itself in the short term."

And this claim was backed up by Spicerhaart Financial Services, a survey by which found that September saw the biggest rise in buy-to-let applications in over a year at 58 per cent, despite the nationalisation of Bradford & Bingley in the same month.

So while it may be the case that the buy-to-let sector is still very much alive, the question for many may be one of when to invest.

Anyone buying property hopes to catch the market as it bottoms out - paying the least possible amount for a home but then watching it rise in value.

This week Moneyfacts.co.uk noted that waiting another 12 months may be the best option, should trends from the last year continue.

Head of mortgages at the price comparison site Alan Harper explained that prices have dropped significantly over the last year and simply by waiting until 2009, borrowers may find themselves able to build up enough of a deposit to secure a much more competitive deal.

Indeed the latest figures from Nationwide show that house prices continued to drop in October and have now fallen by 14.6 per cent over the last year.

Adding to this, suggestions are being made that interest rates are likely to fall even further in the future.

The Bank of England's recent decision to cut the base rate by 0.5 per cent - its biggest change since November 2001 - did not bring the widespread reductions in mortgage rates that many hoped.

However two members of the monetary policy committee (MPC) have indicated this week that further cuts may come.

Over the summer the sole MPC member to advocate a rate rise was Professor Tim Besley, who argued in July and August that such a move was necessary in order to curb inflation.

But now he believes that this threat has "diminished significantly".

Meanwhile David Blanchflower - who has voted for a rate cut in every MPC meeting this year - has reiterated his stance that the body needs to be "aggressive" in making cuts.

Should the other members agree the cost of mortgages may be set to fall significantly in the coming months, although given the volatile nature of the property market at the moment buy-to-let investors may be taking a gamble whether they choose to act now or wait and see how things play out.

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Published on: October 31, 2008

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