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UCB reveals healthy buy-to-let market

Amanda Jarvis

May 23, 2006

A favourable market for landlords, with rising rents, yields, increasing numbers of tenants and gradually rising house prices have all contributed, according to the lender.

Council of Mortgage Lenders (CML) figures show that the number of new buy-to-let mortgages increased consistently over the six years to mid-2004, following which there was a sudden drop of 18 per cent in the last six months of the year, and another fall of 4 per cent in the first half of 2005.

Keith Astill, managing director at UCB Home Loans, said: “That situation has now dramatically turned about — after a year when it looked as though interest in the market had peaked, we are now in the middle of a year of rapid expansion.

“Mid-2004 to mid-2005 was the first year in which buy-to-let purchases ever decreased, but there was a sudden leap of 40 per cent in the number of new buy-to-let mortgages in the second half of last year. This momentum has carried over into 2006, with rising rents and increasing numbers of tenants making the market attractive to landlords.”

Whilst returns can vary significantly, a rental yield of 5 per cent is a reasonable expectation, according to UCB Home Loans. The lender said rents have been gradually increasing in a number of areas, whilst the Association of Residential Letting Agents (ARLA) says that 48 per cent of its members believe there are now more tenants than properties available.

UCB Home Loans says that demand from tenants has been spurred by the number of would-be first-time buyers who are renting rather than purchasing. In some areas, the sector has also been boosted by incoming workers from other EU countries who are staying in rented accommodation.

Keith Astill commented: “However, whilst increasing house prices have resulted in many people staying longer in rented accommodation, this has not increased the average age of first-time buyers.

“Contrary to popular opinion, the average age of first-time buyers is actually quite stable; according to CML figures it was 28 in 1990, rising to 30 in 2000 and falling to 29 at present. This is partly accounted for by gradual changes in the age-structure of the population, as well as the fact that those who are purchasing now are often doing so together in twos or threes, or with significant financial help from their family — something that was not so common fifteen years ago.”

Across the UK, Nationwide figures show that house prices increased by an average of 14 per cent in 2001, 25 per cent in 2002, 16 per cent in 2003, 12 per cent in 2004, and 3 per cent in 2005. In the months to April 2006, the annual increase was 4.8 per cent.

LONDON ON THE RISE

The UCB Home Loans report includes updates on the buy-to-let sector in over 60 UK towns and cities. It highlights the extremely varied pattern of activity across the regions, with the market varying considerably from one area to another, even within individual towns.

London, which has been in decline as far as new buy-to-let purchases are concerned over the past five years, has reappeared on the scene as a suitable candidate for landlords seeking rental properties.

Keith Astill said: “Whilst rental yields in some parts of London are still not high enough to make the figures stack up for a landlord considering new investment, there has been a resurgence of interest in many parts of the capital, with East London currently showing a much higher level of popularity.

“The Olympics have helped to stimulate interest in London’s buy-to-let market, although some of the initial boost following the winning of the bid has now calmed down. Demand from tenants is quite strong in some parts of the city and prices of many properties in London have also been rising.”

Other areas showing interest from landlords include Swansea, Colchester, Rugby, Belfast, Bristol, Peterborough and parts of Glasgow.


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