Buy to let - the party is over

Is the end game in sight for the buy-to-let boom - a period which has spawned a new generation of private landlords? Fuelled by cheap mortgages, rising demand for rented properties from people priced out of the owner-occupied sector and expectations of large real capital gains from soaring house prices, the number of buy to let mortgages has grown year on year to reach over 1 million by the end of 2007. But the landscape the new rentier class is darkening by the week.

(1) Tax incentives: The capital gains tax rate on property investments falls from 40% to 18% on April 6th - an ideal opportunity to dispose of unwanted properties on your books

(2) Le Crunch hits mortgage supply: Many thousands of buy to let investors face the difficulty of renegotiating their mortgages at a time when mortgage rates are increasing

(3) Property on the slide: House prices are falling in many parts of the country

(4) Saturation point? An over-supply of rental properties in many towns and cities is driving down rents and making it difficult to fill a property twelve months of the year - slashing the yield on owning and renting properties. In many cases, the monthly rent no longer covers the mortgage.

(5) Pole-axed: A slowdown and possible reversal of large net migration into the UK will act to soften demand for tenanted properties

(6) Squeeze on buy to let finance: Paragon - one of the leading buy-to-let specialists has withdrawn its range of mortgages.Other lenders are increasing the rental-mortgage cover ratio to 125% or more. This means that they are only prepared to lend if the property owner can convince that the monthly income from tenants will more than exceed the monthly interest repayment.

Put simply, the economic incentives for buying, improving and then renting a property dont look favourable anymore - especially as the banks and building societies are falling over themselves with attractive high-interest rate offers to savers as they look to secure better lines of funding from retail savings deposits.

We wait to see if the new breed of property investors can survive the next year and sit on their hands waiting for a rebound in the property sector. Or are we about to witness a dash for cash as investors look to offload some or all of their property portfolios? If this happens, contagion in buy to let could have a damaging impact on the housing market as a whole.