I recall the lettings industry before “Buy to Let”. There is no question that the onset of Buy to Let changed the Lettings Industry, but at the end of its first decade in 2007, we heard it was the end of of the Buy-to-Let era, that the ‘Bandwagon’ had been and gone, and that those entering property investment were too late. However, whilst with all things in property there are good times to buy and good times sell, I don’t believe for one moment we can look at Buy to Let as an era gone.
The demand that the Private Rental Sector is currently under, the national shortage of stock, the government plans for more social housing cuts and the tightening on lending criteria that prevents many young people from getting on the housing ladder, all point to the fact more rental accommodation is needed now and will be needed in the future. With property prices coming ever closer to reaching the “bottom” and pressure on the banks to start lending, I firmly believe for those looking at a medium to long term investment, ‘Bricks and Mortar’ are still going to give you a great return on your investment.
Historically the rental market slumped at the end of the eighties because people were encouraged to buy their own homes, and with so much money to be made by owning a property many felt the age of renting was over. Of course this was not so as when the recession came in the summer of 1990 demand for property to rent hit an all time high as people held fire on buying, scared off by the reality that negative equity had it many buyers buying in the boom.
Meanwhile, the 1988 Housing Act and further amendments in 1997 made it far more favorable for Landlords to let and mortgage lenders we happy to loan to prospective Landlords.
And so, the dawn of Buy-to-Let began….
Buy-to-Let favorability started with ARLA who launched the initiative formally putting together panels of Lenders who were happy to provide new Buy-to-Let mortgages at competitive rates. Property prices once again soared as many people took out mortgages on second properties, the growth in Buy-to-Let lending exceeded all initial predictions. In 1999 44,000 Buy-to Let loans were agreed and by 2001 the annual total exceeded 72,000, and was worth £6.9 billion. By 2006 reports are up to 700,000 loans. In 2008 ARLA produced data from its mortgage lenders to form the ARLA arla_btl_history
Many investors who bought property as early as 1996 have experienced high returns on the capital value of their properties. This has allowed them to remortgage in order to release equity and buy even more property with the proceeds. Additionally, people who did not invest early have witnessed the returns the early investors have experienced and have also purchased buy-to-let property, hoping for similar medium to long-term gains. From 2002 – 2007 property prices in some parts of the UK had risen by up to 90% giving investors fantastic capital growth.
It was inevitable that the Buy-to-Let bubble would burst at some point. From 2007 the supply of property on the lettings market was starting to prevent rents increasing and in many areas the glut was pushing rentals down. In 2008, in light of the global economic crisis, rents started to fall as many tenants were removed from the market making the oversupply problem worse. Corporate lets were the first to go with companies sending home employees and not bringing over employees and their families. As larger corporate lettings stood empty the prices were reduced creating a domino effect across the marketplace.
With house prices falling and lending criteria tightening, many property investors that had already built up good equity were selling quickly in reaction to the scaremongering that 25% plus could be taken off house prices. During 2008 – 2010 many Buy-to-Let properties were sold. Elsewhere, homeowners who were letting their property whilst going overseas to work, were being routed back to the UK. Other economic factors affecting the rental market are the changes being made by the coalition government reducing social housing and putting more strain on the Private Rented Sector. By Autumn 2010 the Lettings market was once again seeing a shortage of stock began to push rentals back up to pre 2007 levels.
With property prices close to being “at the bottom” and with a shortage of rental stock, is now the best time for investors to consider re-investing in the Buy-to-Let market once again? Is the cycle since the housing crash and recession of the 1990’s going to start again?
Rowntree report: 210,000 new homes needed each year
Only 154,000 new homes being built each year
Interest rates are low and now is a good time to get a fixed mortgage, property prices are very close to, (if not at) the bottom, so a good time to buy and demand for more stock in the rental market is high, and speculated to be an area of significant growth over years to come.
Finally, we are on an island with a Housing Shortage – investing medium to long term in bricks and mortar will prove to be a good investment
Blog Copyright Sally Asling / SurreyLets
