Investors in the buy-to-let market would be among the first victims of a widely expected cooling in the housing market, property consultancy FPDSavills has said.

If last night's dinner party got you all revved up to join the buy-to-let party, we suggest you proceed with care

Richard Donnell FPDSavills

The firm said that investors purchasing buy-to-let homes in "the right locations" with small mortgages, and taking a seven-year view, could expect "reasonable returns".

But buyers already overstretched would be saved only by continuing housing market buoyancy, which many observers feel unlikely.

"If last night's dinner party got you all revved up to join the buy-to-let party, we suggest you proceed with care," Richard Donnell, head of residential research at FPDSavills, said.

"Take advice and think very carefully before you leap in order to avoid a potentially nasty hangover."

Speculators

The statement follows a warning last week from estate agency Winkworth that an easing in the buy-to-let market was set to prompt "limited" price falls in London towards the end of the year.

And it comes amid increasing evidence that the rental market has become a playground for speculators, rather than a means of making long-term investment.

"We believe a significant proportion of recent purchasing has been more speculative, with investors looking for geared capital gains over the short to medium term," Mr Donnell said.

The proportion of homes on the London market bought to rent out doubled to almost 6% between 1999 and 2001, FPDSavills figures show.

Slowing rental market

While house prices have continued to rise, with the latest Hometrack survey revealing average increases of 2.6% this month, the rate of rental growth has fallen.

The popularity of buy-to-let has, by increasing the range of homes on the rental market, given tenants "extra bargaining power", an FPDSavills spokesman told BBC News Online.

In the capital, the rental market have been further affected by 11 September attacks on the US, which has limited demand from foreign buyers.

Rents for prime central London properties have fallen by 12% over the last six months, FPDSavills said.

Limited returns

Yet lenders have proved increasingly willing to grant buy-to-let mortgages up to 85% of a property's value, compared with the 70% ratio recommended by FPDSavills.

"The higher loan-to-value ratios now available to investors exposes their cashflows to even small falls in rents," Tuesday's statement said.

"At these levels investors' cash flows can turn pretty sour."

Buyers of an average UK home, costing �121,881, with an 85% mortgage, would receive in rent only �844 a year more than they paid their lender, if rents fell by 10%.

In London, buy-to-let purchasers of an average home, costing �250,000, would make only �156 a year.