The buy-to-let market is set to keep expanding for the foreseeable future, according to the results of a new survey by Paragon Mortgages.
It indicates that despite continued uncertainty over interest rates and rising property prices, some eight out of 10 landlords in the private rented sector are planning to increase their property portfolios by as much as 100% in the next five years.
This runs contrary to the opinion that an over-supply of rental accommodation will have an adverse effect on the market.
John Heron, managing director at Paragon, said: “The private rental sector is very fractured and localised. The conditions from area to area are radically different and over-supply in the South East will not have an effect on other areas.”
The latest figures from the Association of Residential Letting Agents (ARLA) corroborate this and show that the market is still experiencing healthy growth.
Jane Dawson, business borrowing editor at Moneyfacts, says that potential still exists in residential investment property.
She said: “There is still room for growth in the market. More lenders are coming into the market with something like six to eight entering in the last four months.”
The Paragon survey shows that the growth in the buy-to-let market in the past three years is partially due to the growth of ‘amateur’ landlords, who have increased in number on a scale that outstrips the growth of new professional landlords. However, on average, professionals have more properties in their portfolios.
Paragon estimates that rental yields will fall as landlords expect rents to rise by 2.3% over the next 12 months and property values to climb a further 5.7%. On average, professional landlords currently extract a higher return from their properties than their non-professional counterparts, which indicates that the profit margins of the latter would be the first to be squeezed by any adverse changes in the property market.
While the market is still attracting casual landlords, there could be problems in the future if returns on rental incomes are further eroded by the rise in property values.