The coming buy-to-let financial meltdown

In years to come, the coming property market disaster will be known as the buy-to-let crash. Moreover, it will be the part-time real estate speculators that will lead the market into an inevitable downward spiral of declining prices.

Why? Rental yields. According to a recent study, one third of buy-to-let investors only just cover the cost of their mortgage, while 10 percent of investors receive less rent than their mortgage payments. In other words, the rental yields on one third of buy-to-let investments are either zero or negative. Furthermore, 43 percent see their future investment returns coming from rising property prices.

Can you imagine any other investment where the returns are so low or where the dependence on future capital gains is so high? Sooner or later, these jokers will understand that there is no money in buy-to-let housing. The smarter ones will sell first, prices will initially weaken, and then the dam will burst. The UK housing market will be flooded with unwanted rental properties holding tenants that nobody wants.

This is going to get very ugly.


Buy-to-let investments not covered by rent

Up to 33 per cent of investors say the rental yields they receive on a property only just cover the cost of a mortgage, wile a further ten per cent say they do not receive enough money. That is according to a survey of some 200 property investors. However, the picture is not so severe if the capital gains element of property ownership is considered. During the previous decade house prices have continued to rise, and although they have show signs of some small falls later, they are expected to continue to rise in the long-term.

As such 43 per cent of investors regard price growth as the most important element of property ownership, compared to a mere 11 per cent who see rental yields as the primary income.

"Three out of four property investors place at least as much importance on the future value of their properties as on generating enough income to cover their mortgage, and we firmly believe there is value in buy-to-let applications being assessed on the basis of overall affordability rather than a simple rental cover equation," said Adrian Scott, managing director of residential mortgages at Heritable Bank.