Introducer Today

Conforming

Conforming / Prime Market

Buy to Let Continues To Thrive

Alex Hammond, PR Manager at Kensington

The mainstream national media may be working its very hardest to talk down everything associated with the UK housing market but there are very few signs that Buy to Let is doing anything other than becoming a more mature and robust opportunity for long-term investors. Headlines may be sensationalist and negative, but dig a little deeper and the statistics supporting the continued strength of Buy to Let speak for themselves.

The private rental sector has grown by 21% in five years, according to a UK Housing Review that was recently published by the Building Societies Association (BSA) and the Chartered Institute of Housing (CIH). The report says that half of all household moves are now into the private rental sector. Yet the sector still accounts for only 25% of the total UK housing market and so there is still room for growth and that means continued opportunity for Buy to Let landlords.

The main factor behind this opportunity is that in the UK we are still in a situation where demand for homes greatly outstrips supply. In Homes for the Future, the Housing Green Paper issued by the Department for Communities and Local Government last July, it was recognised that while the housing stock is growing by 185,000 a year, the number of households is projected to grow at 223,000 a year. This suggests that house prices are unlikely to experience significant deflation any time soon and, according to the BSA and CIH report renting remains the most affordable option for many people.

The report says that average ratio of mortgage costs to income for first-time-buyers is now higher than it was in the 1990s at the peak of the last housing boom as first-time-buyers were devoting nearly 35% of their income to mortgage costs by the third quarter of 2007, compared with the previous high of nearly 34% in 1990.  The sharp rise in house prices and mortgage costs over the last decade contrasts with the pattern of private rents, which have merely kept pace with earnings, resulting in substantially lower rents than mortgage costs (around 64% of the cost) on equivalent properties.

While low rents are clearly not good news for landlords, the continued demand for rental property is, and according to research by the Association of Residential Letting Agents (ARLA) this demand is fuelling landlord confidence. ARLA says Buy to Let landlords have not been shaken by the credit crunch and that the majority continue to see Buy to Let as a long-term investment. ARLA’s research reveals that nine out of 10 landlords state they have no intention of selling their properties for nearly 17 years and that four out of 10 of them expect to invest further in the private rented sector this year. According to the report, the average Buy to Let investor has been a residential landlord for just over six years, and only one in 12 landlords expect the investment to be less than five years.

This long-term outlook means that Buy to Let investors are able to ride out fluctuations in the market, and even during times of house price uncertainty Buy to Let can offer investors a natural hedge. Where there is uncertainty regarding house prices, first-time buyers are more likely to defer their first step on the ladder and require rental accommodation for longer – providing extra stability for the sector. Add this to ongoing demand from a growing student population, increasing immigration and a rise in the number of single person households and there is further evidence for the solidity of the market.

So if you do find yourself reading negative consumer press headlines about Buy to Let, just remember that you can’t believe everything you read. Although, with a combination of increasing demand from tenants and the increasing experience and professionalism of investors, you can believe in the future of Buy to Let.