Buy-to-let untested in market downturn

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by Gill Montia

Forecasts for the buy-to-let sector remain varied, with many landlords optimistic about the profitability of the sector. However, higher interest payments are on the cards for those needing to remortgage.

Moneyfacts estimates that 3,662 buy-to-let mortgages were available last August. The number has now declined to 926.

According to the financial data provider, in June 2006, the most attractive buy-to-let £200,000 loan (4.49% fixed for two years with a 1.5% fee) cost £832.90 a month. Today’s best value for the same loan (5.34% fixed for two years plus a 2.5% fee) is £906.85 a month.

The plight of investors who bought city centre new build flats is well known. Many such properties have halved in value and these borrowers are likely to be forced on to standard variable rates that can be as high as 8.75%.

What is as yet unknown is whether longer-standing investors will be tempted to sell by the changes in capital gains tax, which falls from a maximum of 40% to 18% from 6th April.

Some analysts are putting the number of properties to be sold on the back of the changes as high as 20%.

This has led to speculation on the impact sales of rented properties could have on the wider housing market.

According to a recent report by credit rating agency, Fitch, “The buy-to-let market is simply not large enough to cause a general downturn all by itself … but the high concentration of buy-to-let in the crucial London market, and ill-judged media speculation, could trigger a domino effect that impacts the wider market.”

It should also be borne in mind that buy-to-let has never been tested in a market downturn.