The buy-to-let market is now out of reach to the average investor. Only the wealthy can afford to become landlords, according to the Royal Institute of Chanrtered Surveyors. Barriers to entering the buy-to-let market, driven by interest rates and levels of rental cover ratios for mortgages, have made investment an unattractive proposition for most of the population. In the current climate, would-be-investors need to lay down a deposit of £65,600 (30% of a property’s value) for the average UK house in order to get a foothold on the buy-to-let ladder. This compares dramatically with the £10,100 (only 8% of a property’s value) required in 2002 - a deterioration of over 500% in 5 years. Going forward, with evidence that rents are rising strongly and house prices predicted to remain flat in 2008, the yields on residential property could increase slightly in coming quarters. If interest rates fall, the deposit required to meet the rental cover ratios could be reduced somewhat, making buy-to-let a more attractive proposition for many. RICS senior economist David Stubbs commented: "It takes more capital than ever to set up a buy-to-let investment. Would-be investors who have missed out on the impressive returns of previous years are now finding the hurdles to property investment are higher than they imagined. However, existing landlords should be able to use the equity in their past investment properties to fund the deposit needed for new ones, and this should ensure that demand from the buy-to-let sector does not dry up entirely."
To view the full report go to http://www.rics.org/NR/rdonlyres/0047AB96-7169-44CB-94CD-2A9D6BCC84EA/0/BuyToLetResearchNoteOctober2007.pdf
