The Risks of Buy To Let UK Property

Yesterday I read a daunting article. Yes, I believe anything can happen however internalizing it is another story.

The article was in Moneyweek titled

Three good reasons to get out of buy-to-let now

In the article Merryn Web brought out some very interesting points such as  buy-to-let lending is now 18% of total mortgage lending, everyone wants to be in this market, and almost no one sees the risks.

FT, Patrick Jenkins (the FT’s financial editor) compares buy-to-let to the “dotcom darlings of 1999, Chinese stocks in 2015, $100 oil”, and declares this “frenzy no different to past passions… alarm bells should be ringing”

This bubble might be in London where a garden plot sold for a million plus but the area in which we work, Manchester the prices have not surpassed the 2008 peak.  There is still a vast shortage and then there is the story of the High Speed train to London. HS2 will reduce the average journey time from central Manchester to central London from 2 hours 8 minutes to 1 hour 8. This new train will make Manchester a bedroom commuter community. It is quite logical prices can dramatically increase over time in Manchester. More so we buy undervalued. We had a property agreed on for 57,000. The after repaired value brick and mortar is in the 110-115,000 range. However we will create more value by making it into a 4 bed HMO which has already been approved for social housing with no voids, no maintenance and no management. Some of these properties we keep for our own portfolio and some we sell to our investors.

We do not over leverage also as pointed out in the article. Two thirds of buy-to-let loans are interest-only. The simple question comes what will happen to these UK landlords once interest rates move up?

As in everything there is risk…however personally I feel a prudent investor can compound money and build a nest egg by investing in Buy to Let UK properties.

What do you think?