Rental demand surge provides new buy-to-let opportunity
Released on: September 17, 2007, 11:04 am
Press Release Author: Jimwatson
Industry: Real Estate
Press Release Summary: To read some commentators recently, one might have gained the impression that buy-to-let in the UK was about to bite the dust as increased borrowing costs put a squeeze on the industry. But new evidence has suggested this is far from being the case.
Press Release Body: To read some commentators recently, one might have gained the impression that buy-to-let in the UK was about to bite the dust as increased borrowing costs put a squeeze on the industry. But new evidence has suggested this is far from being the case.
It is true, as the Daily Telegraph reports today, that lenders have been putting up their buy-to-let mortgage rates, with Advantage and Edeus doing so this week after Northern Rock plus Alliance & Leicester did so last week.
Such moves, the paper reports, have been prompted by the difficulties faced by some mortgage lenders following the sub-prime crisis. But to suggest that these increases, such as the Northern Rock rise from 5.69 per cent to 5.79 per cent, or the Alliance & Leicester hike from 6.94 per cent to 7.49 per cent, will bring the market tumbling would be to take this news in isolation.
Rather than do this, a broader analysis would show that other factors, far more favourable to the market, are at play. In particular, the overall increase in borrowing brought about by five Bank of England base rate rises in the last 13 months has raised borrowing costs to a point where a squeeze on the residential mortgage market is apparent. Noting the overall drop in mortgage lending between June and July and a seven per cent fall in borrowing by first-time buyers, Michael Coogan, director general of the Council of Mortgage Lenders (CML), has acknowledged that \"the long-anticipated slowdown in the housing and mortgage markets may now be beginning to materialise\".
The effect of this on the buy-to-let market has been established by the Royal Institution of Chartered Surveyors (Rics), which has found that in the last quarter 29 per cent more chartered surveyors were reporting a rise in tenant lettings than a fall, compared with a 15 per cent difference in the previous quarter. Rics has concluded that \"declining accessibility, rising uncertainty and a slowing housing market\" has brought about an increase in rental demand as people put off entering the housing market.
As a result, demand for rented property is on the rise, exactly the sort of thing which should encourage investors. Rics spokesman Jeremy Leaf commented: \"Current economic uncertainty has created an ideal platform for buy-to-let investors to cash in on rising rental levels. Many would-be buyers have decided to wait and see how the interest rate cycle will affect the market.\"
Mr Leaf added that higher rents would also provide \"some compensation\" for those buy-to-let landlords who are feeling the pinch from higher borrowing costs.
Thus a more balanced view of the prospects for buy-to-let can be established by noting both sides of the coin and how they affect the industry. What must also be understood is that what constitutes a good investment now is not necessarily the same as when the buy-to-let market was a new, small segment of the property sector.
Speaking to This is Money this week, Tinas Huelin, a buy-to-let millionaire, explained: \"In 2000, you could get a yield of 20 per cent or more. That was a good income. Today, I aim for eight per cent\". Her point was that, as the market has matured and the best bargains have been snapped up, the large returns possible on investments made when the buy-to-let market was fresh, new and booming were never likely to last. Thus the investor now needs to be more astute. But, as the Rics figures have shown, the market is still on the rise, meaning the opportunities to be successful are still there.
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