The negatives need to be balanced out: buy-to-let has done very well for many people and, if done properly, experts believe it can continue to be an important part of people’s portfolios.
Since the 2008 financial crisis, investors have piled money into buy-to-let, partly as diversification away from the volatile markets and partly to provide that much-needed income.
Bob Young, chief executive of Fleet Mortgages, explained: “For many people, investment in buy-to-let is a diversification away from the vagaries of other investment funds or direct action in the share market.
“A portfolio obviously increases the amount of income generated and potential for future growth.”
According to data from the Bank of England, at the end of the second half of 2015 there was a 40 per cent increase in the outstanding stock of buy-to-let mortgage lending since 2008, compared with an increase of just 2 per cent in owner-occupier mortgage lending.
The share of buy-to-let in the stock of outstanding mortgage lending has risen to 16 per cent from 12 per cent in 2008.
Estimates from various sources have put the market at £1trn in size, some £200bn of which is mortgaged. This means an estimated £800bn worth of the market is non-mortgaged and therefore carries no additional debt for the landlord.
Whether this is the result of having paid off the mortgage or acquiring the property through marriage or inheritance, many buy-to-let investors have no debt on their portfolios, and therefore there is no risk of the property being reclaimed by a bank should the landlord find no tenant.
There is also the long-term performance of property to consider. While there are no guarantees as to future performance, both from a capital gains and income perspective, property can offer good returns.
Christine Newell, mortgages technical director for Paradigm Mortgage Services, stated that despite the changes in legislation, there are still some great benefits to holding a property.
“For a start, you only have to look at the capital growth returns from investing in bricks and mortar compared to investing in a balanced portfolio of unit trusts, bonds and gilts, or the income yield compared to the average pension pot.”
The latest figures from Nationwide showed the average house price was £196,829 in January 2016, up from £176,491 in January 2014 - an 11 per cent increase. By contrast, the UK stockmarket fell 6.92 per cent from 31 January 2014 to 2 February 2016.
Moreover, Nationwide’s data on buy-to-let showed that the average rent in England rose from £288 a month in 2007 to £383 a month on average by the end of 2013. By the end of 2015, excluding Central London, the average UK rental value was £739pcm, HomeLet data revealed.
Not all buy-to-let investors are newbies champing at the bit now they have cashed in their pensions, wanting to make a quick buck out of property. Most are experienced and thoughtful landlords, in it for the long-term, according to John Heron, managing director of Paragon Mortgages.