'The buy-to-let party is over'

HOMEOWNERS clamouring to jump on the buy-to-let bandwagon are risking a journey into financial ruin, one of the country's most prestigious estate agent has warned. Aubrey Adams, chief executive of Savills, has added to the growing warnings that the buy-to-let boom is in danger of collapsing.

Savills handles multi-million pound deals for the likes of Madonna - shebought Ashcombe House near Salisbury, Wiltshire, for £9m last year - and Formula One boss Bernie Ecclestone, who paid £65m for a mansion in Kensington.

The number of buy-to-let mortgages has soared by more than 50% in the past year, and Savills warned that thousands of owners could be left nursing huge losses as the rental market slows down.

While property prices are still rising, demand for rented accommodation is tapering off. In London, residential rents have fallen by 12% since the start of the year. Savills said that returns are also being squeezed. And buyers, who are increasingly taking buy-to-let mortgages of 85% of a property's value, face hefty losses if they cannot find tenants and keep properties occupied 12 months of the year. With less than 5% of the housing stock available for rent, small changes in supply and demand can hit landlords hard.

According to the Council of Mortgage Lenders, there were 185,000 buy-to-let mortgages at the end of last year with £14.7bn owed. And 41,000 of them were taken out in the last six months of 2001.

Savills calculated that on an average £121,881 house, an owner risked losing more than £850 this year if the property was not let for three months and rental rates fell by the expected ten%. In London, where an average house costs £250,000, losses could total £2,938.

Buy-to-let fever tends to be isolated in pockets such as city centres. In London, for example, three-quarters of all newly built properties were bought for investment last year. Richard Donnell, Savills' head of residential research, said: 'Those who are already overstretched may be saved if the housing market remains buoyant. But if the chatter at last night's dinner party tempted you to join the buy-to-let set, we suggest that you proceed with care.'

Adams said property prices were unlikely to rise by much more than 5% this year, though the opening months had been stronger than expected.