Small buy-to-let landlords to face stiff competition from 'Robbie Fowler' professionals
The buy-to-let market is set to be dominated by larger professional investors as a mortgage squeeze holds back small-time landlords.
A study by a team at the University of Nottingham - entitled We All Live in a Robbie Fowler House: the Buy to Let Market in Retrospect and Prospect - suggests smaller landlords will be simply outmatched by more established players in the market who will be waiting to snap up properties at rock-bottom prices.
The title refers to the chant of Liverpool fans after the team's striker Fowler built up a substantial portfolio of properties in the north-west.
Professor Andrew Leyshon at Nottingham explained small buy-to-let landlords are now facing the problem of falling house prices and lenders reducing the loan-to-value rates on mortgages.
For those planning to remortgage, the options are now becoming limited as both the equity they hold has dropped and the size of loans they can get.
The problem worsens as many buy-to-let mortgages are interest-only.
Professor Leyshon said: "A lot of these buy-to-let mortgages are interest-only mortgages, so they're not actually repaying the principal, and many of them are on rates that need to be rolled over, and it's not so much that they can't afford these rates if they have to be rolled over, but do they have sufficient capital?"
The trap for borrowers is intensified as many flats now seem to have been overvalued in an overvalued market - as lenders in effect provided 100 per cent mortgages - so now prices of some properties in particular city centre developments have fallen severely.
Professor Leyshon said: "When these mortgages have to be rolled over, it's a very different proposition, because some lenders have reduced their LTVs to 50 per cent so can these people find the capital to fund these mortgages?
"Interest rates are no longer the issue, but capital is."
The report now points to buy-to-let investors looking towards away from the new city-centre apartments to the ordinary suburbs where occupancy is more or less guaranteed.
"Lenders will be looking for mundane, regular sources of income rather than 'fictitious' potential income from as yet unrealised tenants," Profession Leyshon said.
"This will put occupied terraced housing on the preferred list over the new-builds, conversions and even businesses, where the return on investment is not as sure."
He went on to predict the future of buy-to-let will be away from speculative investments to local landlords knowing their patch.
"Research strongly indicates that you need local knowledge and active management to make a success out of the market," the academic claimed.
"The days of speculative investment in property you haven't seen are rapidly coming to an end."
Listen to the Nottingham University podcast with Professor Andrew Leyshon on buy-to-let
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