Buy-to-Let is heating up
John Phillips is financial services director at Kinleigh Folkard & Hayward
Buy-to-Let mortgages have been very successful for lenders and for residential property investors over the past decade and this looks set to continue. Rising property values, less economic uncertainty, a confident stock market and low interest rates have led to something of a mini boom in the UK buy-to-let market.
It has been suggested that landlords will embark on a home buying spree in 2013 with three quarters of professional landlords choosing to increase their portfolios and elsewhere figures show that the number of ‘first-time landlords’ is running at its highest level for a year with 44% looking to invest for the first time.*
Behind this growth is the improving availability and keener pricing of landlord finance. Bank lending to landlords fell sharply during the credit crisis but has recovered and strengthened. Ironically, the Funding for Lending Scheme, – and it’s inevitable extension – has undoubtedly helped this boom. Interest rates on Buy-to-Let loans have decreased and lending volumes are rising. In the last quarter of 2012, loans to landlords were up 8% to £4.2bn. Rising rents (with yields in some parts reaching over 5%) and low-cost mortgages (now below 4%) will spur small landlords to buy more.
Though this is not yet a bubble, the situation merits some words of caution: this rosy picture cannot be painted across the UK as a whole. Much like residential housing prices, although the market remains strong and generally demand for renting will continue to rise, some areas could easily become oversupplied, bringing down rents and creating rental voids. Ideally, investors should know by now that Buy-to-Let is not a ‘get rich quick’ scheme.
However if the government chooses , as looks likely, to use the property market to reignite the economy (the incoming Bank of England Governor has form here too) then we can expect fireworks. The changes to Permitted Development legislation and the rumour that residential buy-to-let may yet be permissible (again) in SIPPs would really light a fire under a smouldering market. Buy-to-let has a glowing future.