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Rented Housing and the Buy-To-Let Boom Renting rather than buying The size of the rented sector in Britain is below other European countries. But there are signs that the private “buy-to-let” market has partly reversed the long run trend towards greater owner-occupation. Renting is an alternative to buying. The average cost of renting a property from private sector landlords has risen by over 30% since the start of 2000, well above the general increase in the cost of living. One reason for the steeper price of rented property has been the large rise in demand for rented accommodation from the influx of migrant workers into the UK. Demand for rented property has also been stimulated by the worsening affordability for owner-occupied housing. If people are “priced out” of the housing market, unless they are prepared to stay with family and friends or find somewhere to live from local councils or other social landlords, they are driven into the private sector market. Expansion of Buy-To-Let Schemes Private letting has been a big growth area “Buy-to-let” occurs where people purchase properties and then let them out to tenants. This has the effect of increasing the supply of rented properties. There are now more than two and a half million households living in a property rented from a private landlord. Most buy-to-let property buyers regard it as a financial investment which will generate a flow of rental income from their tenants. Others are in the market in the hope of making capital gains when they sell one or more of the properties in their portfolio, For many landlords, it is their major source of income. According to research from the Council for Mortgage Lenders, the two biggest factors that might cause buy to let investors to reduce the size of their property portfolios were rents being insufficient to cover the mortgage and secondly, rising interest rates. Many buy to let investors remortgage their existing homes to free up funds to buy and then let out new properties. What Explains the Growth in Buy-to-Let? The demand for rented properties has increased leading to increase rents and therefore profit motives for private landlords. Demand for rented property has increased for a number of economic and social factors: Social factors: Social change has played an important role - for example increased job mobility; greater student numbers; graduating students burdened with loans; and the increase of single-person households. Some commentators attribute the recovery in renting down to the appeal of flat and house-sharing like the young professionals in Friends, the successful US television sitcom! Financial incentives: Private investors like owning rental homes because they see good returns - from both rental income and capital growth. Over the past decade residential property has returned a higher return that stock market. Specialised mortgages: The buy-to-let market has been stimulated by the rise of estate agents dedicated to letting - and lenders keen to provide specialist mortgages. There are now more than 40 banks and building societies that offer buy-to-let money. Big players are Nationwide, Paragon, Bank of Scotland and Britannic Money, among others. Typically, landlords can borrow up to 85 per cent of the value of a home at interest rates of less than 2 per cent over the base interest rate. Some believe that demand for rental property should grow over the long term. Some analysts expect almost 4m new households to be created in the next 20 years - and more than a quarter of these are expected to rent. The supply of new homes being built is limited - helping to keep rent levels high. Some are concerned that about pressure on rents and the effects of over-supply of rented property especially in London. If interest rates rise this will slow property inflation and damage the economics of buy-to-let. Often landlords underestimate the costs of management and repairs and re-lettings. Average rents in the rental sector like any market depend on the balance between demand and supply! |