Buy-to-Let: The Perfect Storm?

For many investors, the start of the credit crunch in 2008 signalled a retreat from the buy-to-let market, as the mortgage market effectively froze and house prices went into free-fall. Fast forward to 2011, and both the economic and market landscape has rapidly changed and is captivating the interest of experienced investors and increasingly major institutions.

Historically in the UK, renting is usually seen as a short-term option in the run up to buying a property. However, with concerns over job security, an increasing number of students and graduates with large debts, and higher divorce rates leading to an increase in single occupancy households, demand for rental properties from those unable to obtain or maintain a mortgage has dramatically increased. There is also a growing pool of young professionals who are unable to make the first step onto the property ladder due to higher deposit requirements, and are therefore renting for longer, with the average age of unassisted first time buyers now at 37.

Not only are people struggling to obtain or hold down property, there is now a digression from the traditional social ideals that hold owning a property as a necessary stamp of achievement. More and more people are questioning their need to be tied to a property, with a transient labour market, the desire for more freedom, and the retired freeing assets to help family members financially whilst being able to see the benefits. These factors are pushing up the demand for rental properties, and with increased demand and low stock, rental prices look set to further rise. Garrington have recently acted for several clients who also want to secure property now for their children as a hedge against future price rises and their children not being able to enter the market.

From a financial perspective, private investors and landlords are seeing compelling yields when compared against other asset classes. George Osborne has recently supported the idea that investment in buy-to-let may be a key factor in the recovery of the property market. The government is also encouraging investment in residential property by large institutions, seeing it as an opportunity to boost the housing shortage by encouraging new builds. In the recent budget, favourable tax reforms regarding Stamp Duty allow investors who are purchasing more than one property to pay Stamp Duty based on the average value of the properties rather than total value. This tax change offers investors thousands in savings and further enhances yields.

With healthy (and growing) demand, high yield potential, long term capital growth and historically low interest rates, the conditions for a significant upturn in this sector of the market look to be in place.