According to the press there is an explosion of buy-to-let mortgages that will serve to distort the residential property market fuelled by cheap loans.
Firstly, buy-to-let mortgages are not offered on the same terms as a domestic consumer and the truth is that whilst there are a number of these there are certainly not enough to distort the markets in one way or another.
There is no question that residential property is a very appealing asset class today as pensions become less interesting, the stock market is too unpredictable and the bond market is pretty dull.
Income yields could be anywhere between 3-4.5% and if property prices rise this could provide a gross total return of almost 10% which is very interesting.
Frankly I’m not surprised at this at all since I have been trumpeting investment in the residential property market for some time now.
Buy-to-let investments are relatively low risk. There is no question that after recession the property markets could drop by up to 25% but they usually recover within a year to 18 months and in any event the loan to value ratios on most buy-to-let mortgages are very conservative i.e. 60%.
Over a thirty-year period money invested in residential property has been one of the most rewarding investments and is probably a far better option today than personal pensions that have been hit hard by the Chancellor.