Buy-to-let property investment: do your sums

A shortage of affordable homes
and squeezed incomes has led to a drop in the number of first-time home buyers,
according to data from the Council of Mortgage Lenders (CML). In contrast, the
CML found a huge expansion of the buy-to-let sector, there were 400,000
buy-to-let loans worth £39 million in 2003, compared to 1.45 million loans
worth £164 billion in 2012.

Although rising rents and
increased demand for rental properties are an attractive option for buy-to-let
investors, with many returning to the market, the returns now are smaller than those
a decade ago. According to research from YouGov SixthSense, landlords received
4-6 per cent in rental returns between 2002 and 2006; falling to between 1-4
per cent since 2007. The profit from capital gains
has also fallen, with landlords seeing 15 per cent in capital gains before
2003, 7-8 per cent between 2003 and 2006, and less than 4 per cent since 2007.

Many landlords also have 'unrealistic
expectations' of the profit to be made from buy-to-let investments by failing
to take inflation into account. Other deductions from rental income include
mortgage interest payments, agency fees and other management expenses.

Simon Mottram, YouGov's financial services consulting director, said
many buy-to-let landlords had unrealistic expectations of the amount of money they
would need to invest into their properties, as well the likely returns.

He said: "The money illusion can mask a great deal of risk that
people can put themselves in because of falling returns from increasing
inflation as well as the cost of additional expenses. Potential buy-to-let
landlords should go into property ownership with their eyes open, being aware
of the costs and potential pitfalls as well as the possible gains."

Please get in touch to discuss your investment plans.