In Yann Martel’s prize-winning novel, Life of Pi, a young boy survives a shipwreck, only to find that he is sharing his lifeboat with a Bengal tiger.

The lot for mortgage brokers is something like this. Back in 2004 there were 38,147 mortgage sellers registered with the MCCB, but now there are probably only a quarter this number and those that remain have found themselves increasingly dependent on buy-to-let.

It is the only sector showing any real buoyancy at the moment but should mortgage brokers worry about the future of buy-to-let and what are the threats if any?

In March 2012 Savills reported that buy to let properties were worth £840bn, up 42% over the past five years and supporters point to rising demand, driven by first time buyer exclusion, and rising rents. But it is unlikely that this inflation can continue as tenants’ disposable incomes are squeezed.

Recently BDRC Continental reported rising rents and voids for smaller landlords and The Model Works published data that revealed that buy-to-let returns are turning negative, so profitability is a problem.

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Some will argue that buy-to-let is a long-term investment, but research shows that profitability is driven mainly by house price inflation. It follows that investors may avoid buy-to-let as values fall, only returning when they begin to rise again.

The IMF believe the property prices are still too high and could drop by a further 10-15% relative to Britons’ salaries. The market is volatile and now seems to be on a downward cycle.

The optimistic data, produced by those with an interest in buy-to-let sector growth is questionable and brokers have a responsibility to their clients.

Regulation is another threat. Many buy-to-let investors are poorly informed and naive individuals and yet the market is unregulated and their activities are treated as a business from a tax perspective.

Ideally, buy-to-let mortgage brokers should be qualified to advise on investment alternatives, understand the business issues and be familiar with the tax implications of their mortgage advice.

They should also be equipped to quantify the risks, particularly if they are suggesting interest-only strategies on large, highly geared portfolios where investors are most vulnerable.

Mortgage brokers need to consider all the profitability drivers. These include property price trends, lender criteria and fees, interest rates, acquisition and selling costs, maintenance, management and insurance expenses, factors affecting demand and rental income trends, arrears and voids, housing benefits, income tax relief and capital gains tax.

They should also incorporate the opportunity costs and potential risks of opting for alternative investments versus tying up funds in a property that may depreciate for several years.

Ethically, if buy-to-let is not an ideal solution then the clients should be informed and if the mortgage broker is not authorised to advise on other forms of investment, they should refer the client to someone who can.

Concerned about the growth of buy-to-let and the risks for smaller landlords, the government could act. By way of an example, they might decide that investors with more than, say, one property incorporate to become limited companies with small landlords being regulated, with buy-to-let treated as an investment.

This would resolve concerns, but it would create problems for mortgage brokers and change the way in which buy-to-let properties are funded. Initiatives to resolve first time buyer exclusion may also result in unintended consequences for buy-to-let.

This hypothetical example highlights how vulnerable the buy-to-let lifeboat could be to the squalls of falling profitability and possible government action and like a shark circling the waters beyond, the EU continues to threaten regulation to deter irresponsible lending. One needs to read Life of Pi to work out who the tiger is.

Brian Hall of The Model Works can be contacted at brian.hall@themodelworks.com