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A new alternative to Buy-to-Let for property investors

The Joint Equity Scheme both helps 1st time buyers to purchase the home of their choice, and provides property investors with significantly better returns than buy-to-let.

The buy-to-let market has been very strong for several years and has supported price and volume growth where the other sectors, such as 1st time buyers and previous owners, are slowing. In the case of 1st time buyers the slowdown is so severe it must be considered as desertion.

However, the buy-to-let market has had an air of unreality about it for the last 12 months, as yields fall back to almost zero and void periods have grown. This sector has kept its momentum by significant numbers of existing landlords exiting early in order to lock in capital gains. The new buyers are less experienced in this sector of the market, and many are now looking at a possible capital loss as valuations drop below their original purchase prices, and rising interest and management costs can mean an actual loss each year with expenditure exceeding income.

The current drop in prices and loss of confidence can be tracked to the exit of so many buy-to-let landlords at once.

Brad Bamfield founder of Joint Equity says as 1st time buyers have not been in the market in any significant numbers for some years, there is no-one to buy properties from the current 1st time buyers who want to move either location or up-market. Equally, the exiting buy-to-let landlord can only sell to incoming new buy-to let landlords as there are no 1st time buyers entering the market.

This lack of 1st time buyer activity is unbalancing the market, and until they return, we are unlikely to see renewed confidence or market up-turn. However, the same structural reasons responsible for 1st time buyers being excluded from the market for the last 3 years are still there. Namely that salaries are too low to provide a mortgage that will permit them to buy a suitable property: A salary of 21,000 will allow a mortgage of 84,000 and means for even a fairly modest home in most urban areas the buyer needs upwards of 40,000 deposit to close the mortgage/price gap.

The Joint Equity Scheme now offers 1st time buyers a way back into the home ownership market by bridging the mortgage/price gap, and provides property investors with better annual income, higher capital growth at lower risk than traditional buy-to-let investments.


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December 2004