Buy to let still on the increase

A number of new surveys show increasing numbers of investors returning to buy-to-let as restrictions on mortgages continue to force would-be first-time buyers into the private rented sector. According to the Council of Mortgage Lenders 11.8bn worth of buy-to-let mortgages were agreed in the first nine months of 2012, a 19% rise on the 9.9bn in the same period of 2011. Lenders are keen to allocate mortgages to this area of the market, due to the high deposits that landlord investors usually have available, compared to first time buyers.

A recent survey for the National Landlords Association shows that 80% of buy-to-let investors regard their property income as their pension. About 61% plan to live entirely off their rental income when they retire, and 39% say they will choose a retirement date based on the state of the housing market and their investments' value.

Research for Paragon Mortgages shows more than one third of brokers reporting that it is easier to obtain buy-to-let mortgages in the third quarter of 2012 than at any point earlier in the year a higher figure than on similar surveys at any time since 2008.

The surge in interest in buy-to-let is not surprising. Average rents in the private sector in England and Wales hit a high of 741 per month, according to research by LSL Property Services. The lowest average rents are in northeast England at 529 and the highest in Greater London at 1,092.

Savills, the estate agent gave landlords more good news. In a recent forecast for the 2013 housing market, it predicts that average rents across the UK will rise 2.5%, and there will be a cumulative increase of 18.2% between now and the end of 2017. "In London the number of households in the private rented sector has risen 90% over the past 10 years while the population of 20- to 34-year-olds has grown by 18%," says Savills' research head, Yolande Barnes. "At the same time, the average first time buyer deposit has risen from 12,000 to 58,000."

"The owner-occupier market is sinking deeper into the mire and dragging property prices down," says David Whittaker, managing director of Mortgages for Business. "It's great news for buy-to-let investors, able to snap up cheaper property, usually at a higher loan to value ratio because lenders are willing to advance more when property prices are lower." Such landlord optimism is based on the assumption that mortgages will remain hard to secure, particularly for first-time buyers.

Investors who believe they can enjoy a double benefit of high rents and long-term capital appreciation, twin benefits of buy-to-let until the downturn, may have to think again. Estate agent Knight Frank is forecasting that house prices which across the UK are already an average of 10% below pre-downturn peak levels will slide further in 2013. Falls will vary from 0.6% in Greater London to 3.8% in Wales.

Many experts in the field believe that a further correction is needed as the relationship between average earnings and average house prices is well above the long term average.
The emphasis for landlords will therefore be on rental income and not capital growth, a fact that isn't great news for tenants. However most landlords appreciate a reliable tenant who pays the rent promptly at an affordable rate rather than holding the property empty trying to achieve a market beating rent.

Parkinson Property

30th November 2012


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