Buy-to-let landlords - Bail out now warn property experts

Article by Toby Serter

Wednesday 14th November 2007, 23:35

Thousands of buy-to-let landlords face ruin unless they sell up now say experts. Many are warning that thousands of small-time property investors with around 20 – 30 investment properties risk losing a minimum of 30-40% off the price of their investments over the next 18 months – 2 years unless they cut their losses and sell now.

Experts are predicting that the UK housing market will crash at least by as much as 25% but there are some who say that the ever worsening credit problems in the US are in fact a huge problem for the UK. The problem will be worse still for buy-to-let investors as recent change in capital gains tax laws could tip the balance of a flood of properties onto the already flagging UK property market.

The government have cut the rate of capital gains from 40% to 18% - The new rule which comes into force next April means that in a prospering market, the lower 18% payment would encourage landlords to sell more freely instead of waiting for 3 years as is the case now, in order to evade paying the tax.

However in a falling market, hundreds of buy-to-let properties will flood the market as landlords bail out.

Some experts are so convinced that the housing market is in for a severe collapse that they are predicting a 40% correction in the market over the next 18 months. “The sub-prime disaster in the US is a scary situation for global economy” – said Howard Pinto, property specialist at City Homes, London. “The fact that America is facing losses of over 55% and falling is an indication of what is about to happen here” he said.

Sure enough, house prices fell at their fastest rate for more than two years during October as would-be buyers continued to stay away from the market, figures have shown.

The Royal Institution of Chartered Surveyors said the cost of property in the UK fell for the third month in a row in October and at its fastest pace since July 2005.

At the same time the number of people looking to buy a home fell for the 11th consecutive month as a combination of higher interest rates, the recent credit crunch and tighter lending criteria from mortgage lenders hit demand.

But the group said a shortage in the number of homes being put up for sale was continuing to prop up the market.

It said the level of people looking to sell their home fell for the fifth month in a row as homeowners were under little pressure to sell while the economy remained fundamentally sound.

But despite this, surveyors' confidence in house prices going forward has reached its lowest level since April 2003.

Overall 22.2% more chartered surveyors said they had seen a fall in house prices than those who had seen a rise, compared with 14.9% more who reported seeing a fall in September.

At the same time 41% more chartered surveyors said there had been a drop in new buyer enquiries than those who had seen a rise and 17% more had seen a fall in properties coming on to the market.

Surveyors reported seeing price falls in all regions of England and Wales, apart from London, while there were large declines in Northern Ireland and price growth in Scotland cooled markedly.

RICS spokesman Ian Perry said: "The housing market is seeing the awaited slowdown that many had been expecting, with modest falls reported across most UK regions. A decline in transactions may be in the offing as stalemate returns to the market, although a material fall in prices would require a weaker labour market prompting forced sales."

 

 

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