'End of an era' for buy-to-let

The era of novice property investors buying a house before seeing it is coming to a close, as is their window to land a bargain without being undercut by established landlords.



These imminent changes to buy-to-let are warned of in a new report from the University of Nottingham, based on a 12-month study on the market's reaction to the recession.



Entitled 'We all live in a Robbie Fowler house: the buy-to-let market in retrospect and prospect,' the report says small landlords will be muscled out of deals by property tycoons.



These property investors, typically capital-rich or established, will be waiting to snap up rentable homes at rock-bottom prices, in order to bolster their portfolios and property empires.



The report, named to refer to a Liverpool football club chant about their striker's property buying spree, claims a 'property neutron bomb' will wipe out "many smaller landlords."



Professor Andrew Leyshon, report co-author, said that up until a few years go, having a buy-to-let investment was "almost a license to print money" given the rapid rise in property prices.



"But since 2003 it's become a more problematic proposition, because interest rates began ticking up from then on," he said.



"That had an impact on yields and the fact that people were buying in to an already inflated asset, so housing prices were expensive but also then interest rates were becoming more expensive as well."



Alongside the recent falls in property values, rising interest rates help explain why tens of thousands of landlords are now struggling to meet their mortgage repayments.



First-quarter figures from Moody's, the ratings agency, show that 3.55 per cent of landlords are at least three months behind on their repayments, up from 0.95 per cent last year.



Repossessions for landlords were also up marginally on the year-ago quarter, show the figures, seen by the Times, based on loans packaged into residential mortgage backed securities.



Meanwhile, the paper understands that a senior director at Britain's financial watchdog has signalled that flexible self-certification mortgages could be made extinct.



John Pain, of the Financial Services Authority's retail markets unit, said almost half (45%) of self-cert loans in 2007 were approved without a check on the borrower's income.



He reportedly added: "While [self-cert] loans are legitimate as a niche product for the self-employed and certain other borrowers, it should perhaps not be as widely available as it has been".



A more immediate cleaning up of the mortgage market is in the form of a proposed register and £50 fee for all private landlords, self-employed or not, for which fresh details have been published.



Alongside mandatory registration on a new landlords' database, which would contain the addresses of all their property holdings, the government proposes a new regulator for agents.



Its response to the Rugg Review also cites a plan to allocate compliant landlords with registration numbers for use in tenancy agreements, court proceedings and housing benefit claims.



The National Landlords Association said the measures were "well-meaning but flawed," as although it backed a clampdown on rogue operators, it opposed the annual collection of addresses of rented property.



Yet almost any scheme to stamp out the rogues is likely to win over lenders, particularly as the current climate puts more of onus on them to find realistic and regular sources of income.



To this end, Professor Leyshon said lenders would shun 'fictitious' potential income from as yet unrealised tenants, suggesting incoming challenges for new-build properties in city centres.



He said that, as a result, lenders would put occupied terraced housing on the preferred list over new-builds, conversions and businesses, where the return on investment is not as sure.



This signals "severe geographical limitations to investors," who will be lured away from city-centre apartments to the ordinary suburbs where occupancy is more or less guaranteed.



The effect will be fewer 'passive enrichment' investors – those who live outside the area in which they buy properties to let, Professor Leyshon predicted.



He said: "Research strongly indicates that you need local knowledge and active management to make a success out of the market. The days of speculative investment in property you haven't seen are rapidly coming to an end."