Buoyant – and growing – tenant demand is driving up rents, which are now at an average of £692, according to LSL’s latest buy-to-let index – matching the highest on record.
With deposit requirements a major hurdle for first-time buyers, 171,000 fewer first-time buyers were able to obtain a mortgage in the past 12 months compared to the same period four years ago. This is feeding through into demand for rental accommodation, pushing up competition for the average property, and will continue to do so for the foreseeable future.
However, with rents growing at a faster rate than house prices, the star of the show for investors are yields.
They are now at 5.1% a month, their highest since before the housing market downturn. Even accounting for the average voids and arrears, yields remain high at 4.6% – a situation which has many long-term investors lining up to exploit.
No longer is it simply cash investors who are able to take advantage of such lucrative rents and yields as the buy-to-let mortgage market shows signs of loosening.
Buy-to-let mortgage lending showed significant signs of growth in 2010, which has spilled over into 2011; the CML reports that in the first quarter of this year buy-to-let lending increased by 25% compared to the year before.
Nevertheless, while the buy-to-let mortgage market is quietly heating up, it’s hardly scorching.
Buy-to-let lending is still one third of the level seen four years ago and we are still a world away from the variety of products seen on the market before the downturn.
Moneyfacts’ latest survey shows the number of products on offer has risen by 55% in the past 12 months, from 299 to 463. But even now the number is not in the same ballpark as 2007, when there were more than 6,000 different products for brokers and intermediaries to choose from for clients.
Overly stringent lending criteria are also hampering further investment from thousands of prospective landlords. The average LTV requirement by lenders has remained stubbornly low, averaging 75% in the past quarter – meaning that even an experienced professional property investor looking to expand his portfolio will have to stump up a deposit of over £59,000.
The buy-to-let sector is on the up, but for it to return to its former glory, we need a consistent improvement in lenders’ commitment to experienced landlords, and a prolonged bounceback in the variety of products on offer.
David Brown is commercial director of LSL Property Services
