Is Buy-to-let Still a Good Investment? – Part 1

Rewind a couple of years and the media was awash with stories of property investment successes and buy-to-let miracles. Mum and Dad investors throughout the country, and indeed the world, were becoming millionaires with the help of unprecedented capital gains on their often small property portfolios.

Those who were lucky enough to buy properties before the boom were watching their money grow as the headlines reported double digit year on year gains almost every month for several years. Buy-to-let property owners had good reason to feel smug as the rents rolled in and their portfolios doubled and tripled in value with very little effort from their owners.

Banks and non-bank lenders throughout the Western world scrambled to secure their buy-to-let mortgage products on almost any property they could find while surveyors seemly valued these same properties with little thought of potential future capital declines. Buy-to-let mortgages were offered to almost anyone who could put a half decent case forward to a lender while loan-to-value ratios reached almost 100% for some products. This meant that anyone with their heart set on building a property empire – regardless of their financial status or background – could buy almost any property they desired without having to put in much of a deposit at all, if any.

In amongst the action were so-called property gurus peddling their courses, books, and money making systems that were snapped up by property-hungry individuals from all walks of life. It would be interesting to know exactly how many people handed over thousands of pounds of their hard earned money to these gurus without ever checking their credentials. It wouldn’t be surprising if many of the gurus had never made a penny out of property before setting up a course and writing a book about their alleged experiences in the investment property game.

It’s no wonder this scenario didn’t last. The investment property bubble of the early 2000s eventually had to burst. There are only so many houses and apartments in the UK and they can’t all be rentals. Several million cashed up investors with more money than sense piling in on a barely growing total number of properties in the UK was always going to drive prices up to an extreme level. It was a matter of time before it all came to an end, and that end began in 2007.

Almost over night the once generous lenders began to reel in their home loan products by the hundreds. Buy-to-let mortgages did not escape the cull and the majority of the products on offer across the entire market shrank to a tiny percentage of its bloated size. Hundreds of buy-to-let mortgage products disappeared and those that remained were difficult to secure. The mortgage market would never be the same again and the investment property market changed with it.

Suddenly hundreds of thousands of would-be millionaires were left high and dry as they were unable to complete the purchases of off-plan properties or were unable to refinance properties they already owned. This was due to the fact that there were simply no finance products available to utilise.