Buy-to-let bubble has burst

THE buy-to-let bubble appears to have burst with a sharp increase in the number of landlords selling up in recent months, new figures reveal.

Fears of a house-price crash, combined with rising interest rates, have hit confidence levels among landlords hard. According to the Royal Institute of Chartered Surveyors (RICS), 10% of landlords put their properties on the market in the three months to the end of July rather than renewing tenancy agreements. This was up from 7.5% in October.

Yet at the same time, rents in England and Wales have risen at their fastest level for three years. The average monthly rent on a property across the UK is now £727, although this rises to an expensive £1,622 in London.

Demand among tenants has also remained firm, say RICS. This is partly due to the number of would-be buyers renting while waiting to see what happens to house prices, or because they cannot afford to get on to the property ladder.

RICS spokesman Jeremy Leaf said: 'Demand for rented property continues to increase ... although, investors have become more cautious, wary of a possible peak in house values.

'As a result the proportion of exisiting landlords selling their properties when tenancies come up for renewal has risen. However, this is having little impact on the wider housing market,' he added.

Investment landlords in Scotland are getting the best return on their properties, according to the buy-to-let broker Landlord Mortgages, earning an average of just over 8% of the property's value in rent every year. This compares to 5.99% in Enlgand and 6.19% in northern Ireland.

Despite this, it is worth buy-to-let landlords keeping a cautious eye on the market. The threat of negative yields - where net gains from rents fail to match mortgage repayments - has increased for new buy-to-let investors. There also seems little potential for house prices to go up in the near future, across most areas of the UK.

Yet neither do experts expect further significant rate hikes in the near future, following the publication of the minutes of the Bank of England monetary policy committee's August meeting.

They revealed concern among committee members that fear of a property slowdown could lead to a sudden increase in the number of landlords selling up, which in turn could precipitate a sharp adjustment in house prices.