Making predictions is a bold business as inevitably life gets in the way and what seemed probable subsequently looks inconceivable.
But it shouldn’t stop people from thinking about the future and planning for a range of possible outcomes.
Rather than claiming this year will be the year the rental market bursts I would instead suggest that by traditional definitions of financial bubbles, the British rental market is worth looking at more closely.
Rents have been on an upward trajectory for several years and in the South East for many people are now less affordable than a mortgage. In fact LSL Property Services said recently that the cost of renting is rising annually at nearly twice the speed of the average salary.
I looked at renting in London recently and was frankly gobsmacked at the proportion of my monthly income I’d be handing over to some lucky landlord.
Often in the mortgage trade press we think about the market from a business point of view – quite understandably. And the message has been for some time that buy-to-let is a mortgage broker’s great white hope for 2012.
I’m not disputing the truth in that. Yields for landlords are good. Property prices are low. The low base rate is keeping mortgage rates down and lenders are getting more confident about the range of products they have out in the market. Paragon has just launched a swathe of deals for professional landlords and Santander is finally in the market to lend.
All those arguments about people choosing to rent for longer because it offers flexibility and having to rent for longer because it takes years to save a deposit to buy stand true.
As do the arguments about the shortage of housing, a restricted mortgage market and rising numbers of households in this country.
BUT rents are so high that people are already struggling to pay their monthly rents. LSL data showed in October last year 10% of all rent was either late or unpaid. And it would be foolish to ignore the consumer in the buy-to-let equation.
Their choices may be restricted by their financial situations but rents are getting so high in some parts of the country that their ability to choose the private rented sector is increasingly under question.
Exactly how this will pan out remains to be seen but rising arrears (exacerbated by rising unemployment and the high cost of living) will feed into buy-to-let product design and lender appetite.
Bubbles burst when people cotton on to the fact that they are overpaying. And affordability plays a big role in what people are prepared to pay.
Buy-to-let is a great white hope if treated with care but I would also caution a reality check.
