Radio 4’s Today programme reported that there are over 1 million buy-to-let mortgages in the UK, representing nearly 9% of the mortgage market.
In most cases, net rental yields are below the actual borrowing costs with the result that these “investors” are incurring a cost of carrying these assets. Ordinarily they might rely upon house prices gains, but with increasing signs that the boom is slowing or stopping, many of these investors may well bale out, driving down prices.
How large might this fall be? Hard to guess but once the herd starts moving to offload properties, many of which are homogenous 2/3 bed flats it may create a vicious spiral. Of course, the Bank of England may step in and reduce interest rates and “save the Government’s blushes”, on top of the recent reductions in capital gains tax. But at a time, when the Government is also aiming to increase “affordable housing stock”, it may look perverse to stop prices falling back to levels that people can afford.