"Doom," you say? Controversial. We look at the future of buy-to-let investing.
Buy-to-let is about making money from rental income, not about capital gains in rising house prices. It's also a poor investment choice which is doomed to failure, even for skilled investors.
Ha! Just kidding! I only wanted to make some landlords' blood boil. You see, property investment is a controversial subject. If you're familiar with our busy property discussion boards, you'd consider 'explosive' to be a better description. So when the Council of Mortgage Lenders (CML) released the figures for buy-to-let borrowing yesterday, I'm sure it caused a real punch-up.
The CML reported that, in the first half of this year, lenders advanced 153,000 buy-to-let loans worth £17.5bn. This compares with 130,000 in the second half of 2005, worth a mere £14.6bn. The total value of outstanding mortgages during the period rose more than £10bn to £83.9bn.
After the recent interest rate rise, the question is, should we continue to invest heavily in property? Some people will stop investing, as they'll have concerns about the impact of more rate rises. I'm sure it will deter a few new investors as well, especially as they see their own mortgages go up.
However, interest rates are still low. Also, as lenders gain confidence from low mortgage arrears, the terms for buy-to-let investors continue to get better. For example, investors receive far better interest rates than ten years ago, they can put down smaller deposits, and they can get mortgages based on less rental income.
Many will see the interest rate rise as an opportunity, as it puts off even more potential first-time buyers, and forces some homeowners to sell. The shortage of houses for sale may be partly or largely down to the one or two million properties owned by landlords. However, this means many people will still have to rent and, therefore, strong rental demand will continue.
If you're concerned about investing more, but you have some spare funds or income, consider reducing the mortgage on your own residential property. If you reduce the debt on your investments, it may have adverse tax implications.
But, on balance, I'd say the argument for continuing to invest in buy-to-let for the long term is strong. On the whole, many buy-to-let investors will probably be saying 'Business as usual.'
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