Buy-to-let investments not covered by rent

Wednesday, 24 October 2007 12:00 AM

Rent payments are not covering the costs of a mortgage for a growing number of buy-to-let investors, according to the results of a survey released today by property finance expert Heritable Bank.

Up to 33 per cent of investors say the rental yields they receive on a property only just cover the cost of a mortgage, wile a further ten per cent say they do not receive enough money.

That is according to a survey of some 200 property investors.

However, the picture is not so severe if the capital gains element of property ownership is considered.

During the previous decade house prices have continued to rise, and although they have show signs of some small falls later, they are expected to continue to rise in the long-term.

As such 43 per cent of investors regard price growth as the most important element of property ownership, compared to a mere 11 per cent who see rental yields as the primary income.

"Three out of four property investors place at least as much importance on the future value of their properties as on generating enough income to cover their mortgage, and we firmly believe there is value in buy-to-let applications being assessed on the basis of overall affordability rather than a simple rental cover equation," said Adrian Scott, managing director of residential mortgages at Heritable Bank.

However, for the 11 per cent concentrating on rental yields, Heritable Bank suggests rearranging investment finances to increase yields.

"The outlook for the property market is mixed, with price growth having slowed in most regions," continued Mr Scott.

"This is an ideal time for professional mortgage advisers and expert lenders to help investors squeeze latent value out of poorly structured buy-to-let portfolios.

"Many will have built up piecemeal mortgage arrangements for each new property and not considered how they could restructure their overall portfolio financing far more cost-effectively."

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