High prices are forcing more people to rent property, while landlord numbers are also on the up in light of poor alternative investments, according to lender UCB Home Loans.
This increase in both tenants and landlords has meant an unprecedented period of growth for the buy-to-let market.
UCB’s research highlighted good capital growth and rental return prospects as a major factor in the growing number of landlords.
Charles Reed, managing director of UCB Home Loans, said: ‘Low returns in the investment market, coupled with decreasing expectations from pensions, have been leading people to invest in buy-to-let property as a long-term method of generating both income and capital growth.’
The report notes landlords can generally expect to receive between 7% and 9% gross annual rental return in more active parts of the country, and nearer 5% in areas where house-price rises have slowed down and the ratio of landlords to tenants is higher.
Reed added: ‘Choosing to rent is becoming more acceptable for a wider group of people, particularly those who are young and single. Britain’s level of homeownership is one of the highest in the world, so perhaps we are becoming a bit more European and being more relaxed about renting.’
However, Stuart Wilson, mortgage development director at IFA, Inter Alliance, was cautious about using buy to let as a pension.
He said: ‘Like any investment, buy to let needs professional consideration. Everything that goes up can also go down, but as a pure investment in the long term, it offers sizeable contributions. Where else are you going to put your money?’
While current trends are pushing tenant numbers, Wilson said there would always be a large core to support the buy-to-let market.
He added: ‘There will be a group of people who will permanently rent, However, I am not sure it is through choice because many renters cannot afford to buy, and they would require a house market crash to buy.’
Recent figures from the Council of Mortgage Lenders (CML) show the buy-to-let market was worth £6.7bn in the last six months of 2002. This had increased from £4.1bn in the last six months of 2001.
According to the CML there were 275,000 buy-to-let mortgages outstanding at the end of 2002, worth just over £24bn.