Buy to let has been getting a poor press lately, yet it has been one of the most successful product developments in the residential mortgage industry over the last few years. This is helped by the fact that it has tapped into the sensibility of a culture that believes in the lasting value of ‘bricks and mortar’ and is confident that investment in property is likely to be ‘as safe as houses.’
Land Registry house price figures show a 17.5% overall rise in house prices in England and Wales in the last two years and a 65% rise over the last five years. For anyone who has seen their own stock market-linked investments stagnate over the last two years, this sort of capital growth must look extremely attractive ‘ particularly as the prevailing opinion is that a property crash similar to that of the early 1990s is unlikely.
If rental property seems to be a good investment, will the pool of tenants dry up if too many people take the buy-to-let option? Although the luxury corporate letting market in London has suffered since September last year, I don’t believe market factors point to a decrease in demand. On the contrary, the increase in short-term contracts and redundancies is creating a sector of the population which would rather have the flexibility of renting than the serious financial commitment of a mortgage.
The traditional factors that encourage property ownership, such as marriage and parenthood, are being undertaken by people in their mid to late 30s, a decade later than the previous generation. Research by from Halifax shows the average age of a first-time buyer is now 34, meaning a strong rental market exists within the 18-34 age group.
If rents are fixed at an optimistically high level, and there is plenty of choice for tenants, then landlords cannot expect to let their property easily. However, it is the sign of a healthy marketplace where supply and demand combine to bring pricing down to a reasonable level.
For an investor, buy to let is an interesting half-way house between residential and commercial lending. It is attractive to those with an entrepreneurial spirit who can see the possibilities for sound capital growth and look to acquire not one, but a portfolio of rental properties.
Those entrepreneurs tend to be less risk-averse than the rest of the population and are likely to have had previous credit problems, a factor which will make them unsuitable for most mainstream buy-to-let lenders. But opportunities still exist in the sub-prime sector which is best equipped to understand the concept of risk and reward.
John Prust is sales and marketing director at SPML