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Buy-to-let crisis as new flat prices fall 40 pc
By Harry Wallop, Consumer Affairs Correspondent
Last Updated: 1:56am BST 01/10/2007
The buy-to-let market is in crisis as 40 per cent has been wiped off the value of new purpose-built investment properties in the past year, a survey by The Daily Telegraph has found.
Investors have been left facing losses of thousands of pounds on their properties.
A study of nearly all the new-build flats that have come up for auction in recent weeks shows they are selling for, on average, just 60 per cent of what property investors paid for them.
While official figures suggest that the UK property market – including buy-to-let – is in fair health, there are growing numbers of new-build flats being repossessed in cities such as Manchester, Leeds, Birmingham, Norwich and Nottingham.
The prices being achieved by the auction houses are invariably well below the original prices.
Last week a two-bed flat in the canal side area of Bingley, West Yorkshire, fetched £105,000 – a far cry from the £179,995 that it was originally sold for in July last year. Others have been sold for similarly large discounts.
Many investors who have had their fingers burnt claim that they were duped into paying too much.
Meanwhile, property experts warn that the problem could get worse, with local authorities granting planning permission for hundreds of blocks of flats each week and developers still offering generous incentives to potential investors.
Matthew Loades, an investor who is losing money from his buy-to-let properties, said: “I think there are tens of thousands of people out there who like me jumped on the apartment bandwagon thinking they were on to a winner. Now they are feeling the pain.”
Recent research also suggests that two-thirds of buy-to-let investors are not making enough from their rental income to meet their mortgage payments.
This is because the interest rate hikes over the last year has left investors, who generally take out variable mortgages, facing much higher monthly repayments.
**The Association of Residential Letting Agents, which represents buy-to-let mortgage lenders, said 67 per cent of all landlords were making rental returns of five per cent or less in August – much lower than the very best buy-to-let mortgages of 5.5 per cent.
Supporters of buy-to-let say most investors should not be hit by the mortgage squeeze because they are sitting on large profits made in the boom of the last couple of years.
Official Government figures show that purpose-built flats have climbed in price by 16 per cent over the last two years.
However, in Nottingham 10 flats are on sale in Brook Court, Nottingham for £89,950 – a sharp fall on the £139,000 that the developer was selling them for as recently as December last year.