News Review: Buy-to-let
Competition slowly returning to buy-to-let
by John Heron, managing director, Paragon Mortgages
the plethora of reports and
surveys covering the buy-to- let market continue to point to a sector characterised by strong and growing demand. Figures released by
moneyfacts showed that there are now almost 500 buy-to-let products available - the highest number for approximately three years. Whilst we still have a long
way to go, this is without a doubt a positive step forward and will only help with the overall optimism in the sector, especially as product numbers are almost double what they were last year. complementing
the
return of more established lenders such as Paragon there are many new lenders launching into the market. this will undoubtedly benefit both landlords and tenants, especially as demand for rental accommodation is only looking to increase throughout the next 12 months. i recently chaired the
council of mortgage Lenders’ annual buy-to-let and private rented sector conference in London and the feeling amongst delegates was far more positive than we have experienced in recent years. Lenders were talking about growth, competition and pro- duct innovation once again. the task now facing many
lenders is ensuring that intermediaries are aware of just what is on offer. it is
Generation rent a high profile Halifax report into the aspirations of many potential home-owners garnered mountains of column inches and revealed that two thirds of those looking to get on the property ladder believe they will never own their own home. the overwhelming majority of this group, dubbed generation rent, were not saving towards a deposit to buy a property. We have to make sure that
rented property does not become unaffordable as well. LSL Property Services’ may buy-to-let index showed that rents hit record highs during the month and have now risen for 16 out of the past 17 months. according to the figures, the average uK rent is £696, although landlords
10 mortgage introducer JULY 2011
important that brokers know that there are alternatives out there in the market place, as they will most certainly have become accustomed to dealing with a very restricted group of lenders during the credit crunch. overall, as an industry, we
have endured a tough time over the past few years so it is welcoming news that the market is slowly starting to return to a more competitive position. a full recovery cannot
come too soon as we are seeing evidence that the moribund buy-to-let market of 2008 and 2009 is starting to impact on rent levels and stock availability. this is starting to have a real impact on people’s lives, affecting the type of property and location in which they live.
in London have enjoyed the greatest growth in rents at 7.8% over the past year. LSL’s report was mirrored
by findings from the uK’s surveyors. the
royal
institution of chartered Surveyors’
residential
Lettings Survey showed that increased tenant demand and low levels of rental property coming onto the market pushed rents higher in the three months to april. overall, 42% more
surveyors reported rents rose rather than fell in the period, with ricS stating that in some areas rents have now risen so sharply that previously affordable rental homes are now unattainable to many, as an increasing number of renters are priced out of the market. Paragon’s own research
shows that 40% of landlords reported growing levels of tenant demand during the second quarter of the year, whilst 29% said that rental income had increased during the period.
Alarm bells this body of evidence should set alarm bells ringing. Social housing reforms are set to start biting in the coming months, with changes to aspects such as Local Housing allowance and the rate at which local authorities set social rents. this is likely to lead to even greater demand on private rented sector property. Based on government household formation projections and economic forecasts, it is estimated that there will be 4.1 million households living in the private rented sector by 2016, a significant jump
from the 3.4 million we have today. We are rapidly moving
towards a more balanced housing market where renting for extended periods is much more normal, with more people deciding to wait until later in life to step onto the property ladder. a new generation of renters are certainly emerging, with more young people not just relying on the sector whilst in higher education but also after they graduate too. aspirations are different now - purchasing a home for many is either simply out of reach due to lack of funding; or career choice and general lifestyle are more of a priority for the immediate future. at the cmL conference, i
reminded delegates that buy- to-let celebrates its 15 year anniversary in September. When we look back on what we have achieved over the past 15 years, we can, as an industry, be justly proud. in 1996, the private rented sector offered little choice and generally poor quality housing. today, standards have
improved significantly, as has property choice. Since 1996, the number of privately rented properties in the lowest energy efficiency bands has effectively halved, whilst the growth in the number of homes meeting the decent homes standard has exceeded both the owner- occupied and social housing sectors. the challenge the buy-to-
let market faces is ensuring we can fund the required growth in the private rented sector.
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