The amateur buy-to-let investor has had his day. Deterred by falling property prices and hampered by a lack of mortgage credit as banks tighten their lending criteria, small players who want to buy one or two homes to supplement their income or bolster their pension are fast disappearing.

At the same time, however, professional investors with large property portfolios are cleaning up; many are sitting on substantial sums of equity built up throughout the housing boom. Unlike new investors, they can afford to meet lenders’ more stringent requirements for larger deposits. Figures from Hometrack, the property data company, indicate that 82 percent of rented property is in the hands of professional or semi-professional landlords who own at least ten homes. For these people, a weak housing market represents an opportunity to find a bargain property and take advantage of rents that have risen by 12 percent over the past six months, according to Paragon Mortgages. Investors know that fewer buyers in the market equates to a greater demand for rental homes.

The savvy investors know that this is a good time to buy. Lenders may be asking for deposits of 30 percent or more. In London there are lots of investors with cash who are happy to put down that deposit. They will do the maths and work out the yield. If the property is at the right price, they will buy. Leaving the money in the bank will not earn you that much interest.

Why the property credit crunch favours cash buyers

Paying about 5 percent below the asking price has become the norm but the investors getting the very best deals are those who are buying in bulk. Some investors are managing to buy properties at 20 percent below their market value. There are a lot of properties on the market which would have been snapped up within days last year but are now taking longer to sell. These are now being bought quite cheaply by professional investors who intend to hold for three to seven years.”

These investors will do well out of rents. Falling property prices and the tightening credit crunch means that fewer people are willing or able to buy their own homes and therefore end up renting. The average rental home generates more than £1,000 a month, according to Paragon, and that figure could rise even further.

In the long term, the Association of Residential Letting Agents (ARLA) forecasts that demand for rental homes is set to grow by between 20,000 and 30,000 a year over the next decade because of the rise in the number of divorcees and immigrants, as well as increasing job mobility.

John Heron, Paragon’s director of mortgages, says: “The professional end of the market remains committed to buy-to-let over the long term. They typically hold their investments for a decade or more.” Heron adds that professional investors are not under pressure from the credit crunch because the amounts many need to borrow to fund future purchases are modest compared with the size of their overall portfolio. “They borrow an average of less than 40 percent of the value of their portfolios,” he says.

Property investors today are a different breed to those who dreamt of instant riches during the height of the housing boom. Back then players such as Inside Track, the property investment company that recently went into administration, could easily charge the uninitiated £695 for seminars on how to make money out of bricks and mortar. Novices were taught how they could make money by buying new-build property “off-plan” before a single brick was laid and selling it on at a profit before the building was completed. Dabblers and professionals alike made thousands of pounds from the practice, known as “flipping”, during the boom years. Even at the start of this year, many were still hoping to turn quick profits by flipping properties to other investors.

Few are expecting to make quick money now. The risks are too great and the stakes are too high. Investors might be able to buy cheaply off-plan but will have trouble flipping the property now that smaller investors are not buying. Property investment has become much more professional and much more technical.

Tags: buy-to-let

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