High property prices and rising interest charges do not seem to be deterring existing landlords. A recent survey carried out by GFK NOP for Bradford & Bingley/Mortgage Express suggests that confidence in the market is higher than at the same time last year. The survey found 95% of landlords plan to either increase or maintain the number of properties they own. This is 9% more than gave the same answer at the end of 2005. Fifty five percent plan to buy another property. The survey suggested that most landlords are investing for the long term with 34% looking for capital growth and 38% saying they were investing to provide for their pension. Landlords who participated in the survey also reported healthy tenant demand: 70% had experienced no unplanned void periods at all in the preceding six months, and of those who did most reported that it was for less than six weeks.
Only 3% of landlords plan to decrease their investment. Another survey by the Association of Residential Letting Agents (ARLA) suggests that a significant number of landlords disposing of portfolios are doing so only to circumvent tighter regulations on HMO's, rather than economic reasons as such.
BTL borrowing set new records last year. Statistics from the Council of Mortgage Lenders (CML) shows that lenders advanced loans worth in excess of £24.5bn in 2005 and one estimate suggests the figure for 2006 may be 40% higher. Lenders have also been offering borrowers an ever-increasing array of deals and criteria, in a bid to capitalise on the market.
A shortfall in supply has, of course, become a major factor in the property market generally over the last few years. In this regard, UK demographics remain very favourable for investors. The number of households has been growing much more quickly than the number of people - due to a big rise in the number of single-adult households, particularly those of working age. The Joseph Rowntree Foundation says that the number of households has risen 35% since 1971-from 18.5m to 25m today. It adds that the number is projected to grow by 220,000 a year 2006-2021, leading to a net deficit of dwellings, especially across the south. The Home Builders Federation says that, if housing supply remains at recent levels. there will be a shortage of 50,000 homes each year across England alone and a cumulative shortfall of more than 1 m homes by 2026.
It is easy to see that much of this surplus demand could be diverted into the rental market. However, a few commentators are cautioning about oversupply of some properties, especially new build flats in regional city centres. They point to reducing rents, lengthy voids and buyer inducements on some new projects as evidence that a property shortage is by no means universal.
Demand for private rented property continues to be healthy. The latest ARLA Members Survey Report in Q4 2006 says that seven out of 10 ARLA agents in prime central London areas report that there are more tenants than properties - an increase of 10% over the previous quarter. In the south east the number of agents who report there are more tenants than properties has increased from 34% to 37%. Elsewhere the number of agents reporting more tenants than properties fell very slightly from 34% to 32%.
UPDATED 20/01/2009
The changes in the buy to let market over the last 18 months have been quite dramatic as we have had to deal with the credit crunch which has seen lenders cut back to the bone on lending, and a falling property market.
The falling property market has seen property prices fall across the UK by nearly 17 % in 2008, and a further 10 % is forecast for 2009. This has seen record repossessions and as a result lenders who have either closed the doors and taken a very long holiday, or who have changed the lending terms beyond recognition.
You can of course sympathise with lenders for taking the actions that they have, but it was their lend at all costs policy which have caused the problems that they are now running away from in the first place.
You will certainly have to put down a 25% deposit, and the rent stress test is based on a notional rate of 4.5% plus the margin, which will certainly rule out a lot of buy to let deals. New build has almost become a no go area, as lenders are finding when they have had to take a property in a repossession, the valuations have not stood up to anything like the original purchase price in some cases. The problems have arisen because of the incentives that have been built into the purchase price, which have masked the true price.
The market has seen an over supply of flats and apartments in most town centres, which has seen rental incomes fall and also lenders being unwilling to lend in certain areas as a result. On a positive note this has to be the most golden opportunity for investors to buy a prices not seen for many years, with the potential to build a portfolio from scratch.
This is not a market for the faint hearted or the inexperienced, but the bargains are there, do your home work and due diligence is a must, but there is a lot of money to be made in 2009, if you know what you are doing.
Want some help call Michael Alexander 0845 2 605 506.
