Buy to let investors pulling out of UK market Article Published: 16:45 02/01/2008 Article Classification: Val d Allos
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The percentage of landlords selling their properties is at a three-year high, according to a surveyors' group. The Royal Institution of Chartered Surveyors (Rics) blamed the move on previous interest rate rises and a more cautious stance from lenders.

It said new landlord instructions, an important indicator of the strength of the buy-to-let market, also dipped in the quarter to the end of October.

Yields on flats continue to fall thanks to the oversupply of such properties.

Some analysts fear a slowdown in the buy-to-let sector could exacerbate existing problems in the wider property market.

Olive Tree report that a large percentage of their clients and Property Club Members are existing UK buy-to-let investors. Some of them are adding to their portfolio's by buying overseas, whilst some are pulling out of the UK market altogether.

"One particular client had over 50 UK properties, has sold all of them and ploughed most of the money into buying property abroad" said Charlotte Brady, Olive Tree's Property Club Director.

Exodus

Rics' latest Lettings Survey revealed that the proportion of landlords selling properties when tenants' leases expire rose to 6.5% from 6.1%, the third consecutive increase and the highest level since January 2005.

At the same time, new landlord instructions fell to a balance of plus 11%, down from 19% in the previous quarter.

Rics housing spokesman Jeremy Leaf said potential investors were being dissuaded by the current economic uncertainty and a more cautious approach from banks and building societies.

"A combination of tightening lending criteria and successive interest rate rises has started to hit the buy-to-let market," said Rics housing spokesperson Jeremy Leaf.

He warned proposed tax changes could prompt an even larger exodus in 2008.

"With the change in capital gains tax due in April this year, many landlords will resist selling until the spring," he added.

More broadly the survey found that although rents are still rising, the rate of increase is slowing.

Rics said overall yields remained broadly unchanged, but highlighted an increasing gulf between houses and flats.

While the yield on houses rose for the second successive quarter, the yield on flats fell for the fifth consecutive quarter, thanks largely to an oversupply of such properties.

"It is not rocket science" according to Richard Brady of Olive Tree. "In a market with strong capital growth, cheap credit and decent yields, lots of investors move in.

Each of these areas have now changed here in the UK, so people wanting to make money from property are looking for where this still exists" Brady says "Olive Tree's business model is all about finding those factors on behalf of our clients and Property Club Members...."

'Rich man's game'

The buy-to-let market has grown sharply in recent years. In 1996, when buy-to-let mortgages were first launched, only 20,000 were taken out.

According to the Council for Mortgage Lenders (CML), by September 2007 this figure had grown to 990,000 and the total amount borrowed to £116bn.

But the recent problems in the wholesale financial markets have prompted a tougher approach from lenders, some of whom have withdrawn buy-to-let products altogether.

In November, Rics said property investors were typically being asked to produce a 30% deposit, costing an average of £65,600.

That constrasts with 2002 when a 8% deposit was common, an average of £10,100.

Many lenders now also require that the rent on any prospective buy-to-let property equates to more than 125% of the monthly mortgage payment, which can be hard to achieve in some areas.

Rics concluded buy-to-let had become a "rich man's game", with all but the wealthiest priced out of the market.

But a recent survey of more than 3,800 landlords conducted by Bradford and Bingley, the UK's largest buy-to-let lender, painted a more positive picture.

It found 60% of those surveyed were "undaunted" by reports of a buy-to-let slowdown, with 86% planning to leave their property portfolio untouched or expand it in 2008.