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Buy to let is ‘rich man’s game’

Big deposit needed and mortgage costly, says RICS


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Investing in buy-to-let property is now a ‘rich man’s game’, inaccessible to the average person, the Royal Institution of Chartered Surveyors (RICS) said today.

A rise in the size of the deposit people need to put down, as well as higher interest rates making mortgages more expensive, means only the wealthy can afford to become landlords, the group said.

Prospective landlords must show mortgage lenders that the rent on an investment property they want to buy exceeds 125% of the monthly mortgage repayments on the loan they are applying for.

Interest rate rises

The group said in the current lending climate and as a result of five interest rate rises since the summer of 2006, this meant a would-be buy-to-let investor would have to put down a deposit of 30% of an investment property’s value, an average of £65,600.

This is a 500% jump from the average of £10,100, or 8%, that was needed at the beginning of 2002.

But RICS added that for people who had already bought a buy-to-let property, rents were currently rising strongly, and with house prices expected to remain flat in 2008, yields on residential property could increase slightly.

It added that with interest rates also likely to fall, the deposit required to meet the rental cover was also likely to reduce.


David Stubbs, RICS senior economist, said: ‘It takes more capital than ever to set up a buy-to-let investment.

‘Would-be investors who have missed out on the impressive returns of previous years are now finding the hurdles to property investment are higher than they imagined.

‘However, existing landlords should be able to use the equity in their past investment properties to fund the deposit needed for new ones, and this should ensure that demand from the buy-to-let sector does not dry up entirely.’


The research comes the day after the National Landlords Association warned that a buy-to-let property investment should not be seen as a means of ‘getting rich quick’.

The group said people should approach a residential property investment with caution, adding that with house price falls possible during the coming 12 months, they needed to have a medium to long-term perspective.

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