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 \u00a339 million in 2003, compared to 1.45 million loans worth \u00a3164 billion in 2012.<\/p>\n
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.<\/p>\n
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.<\/p>\n
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.<\/p>\n
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.”<\/p>\n