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Buy-to-let Cautionary Tales
By Mark Wilson of Globe Apartments
It may be too late for those who jumped in at the back end of the buy-to-let boom to bail out even at a loss or indeed at any price, but for those who are watching the market, trying to catch it at the bottom, the underlying fundamentals have not changed. Mark Wilson of Globe Apartments (www.globeapt.com, mark@globeapt.com), a Chartered Surveyor, runs one of Central London’s longest established residential letting and managing agents and has been expressing criticism toward the buy-to-let industry since 2000:
“Buy-to-let is no more than a punt on the residential market. Investors are buying for capital growth. That approach is fine as long as investors can afford to lose their capital, which is the same advice any financial advisor would be giving a client investing into any speculative investment. The fundamental attraction and inherent problem with the buy-to-let concept is that the anticipated (and sometimes) sizeable profits arise as a result of gearing (borrowing money), and as the markets have shown us recently, borrowing money has a risk profile of its own. Market commentary on the buy-to-let sector identifies a high percentage of buy-to-let landlords who are in it for the long term and still plan to buy in the future and are confident of the sector. Similar to the stock market, the clever money has been withdrawn from the buy-to-let market and it is in part the inexperienced investor who is left with his money in the market, looking around for like-minded comfort from other investors, all hoping it will of course get better. Yes, there will be a point in time that the market will recover but is it realistic to expect it to return to its former dizzy heights?
For those planning to invest on the downturn, make sure that the returns are significant enough to warrant the risk. As most debt is personally guaranteed, which can include a charge on your main residence, speculators must make sure that they fully understand the implications of the loan agreement, and like any other investments, do not forget prices can go down as well as up.
Deflation is the new buzzword which in buy-to-let terms could mean lower rents, so watch out and don’t get confused assuming that lower interest rates will necessarily produce higher returns. Interest rates have not been lowered to help speculators, they have dropped to save the economy. If your target tenants are earning less, how can they pay more rent in the long term? Rents have been reported to be showing growth which may be so on a selective locational basis, but then one could look at the price of oil to see how quickly prices peak and then fall. Housing is only a commodity.”
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