Latest News Points to Perfect Storm for Buy-To-Let Investment
UK investment property could be in the eye of a perfect storm in the final quarter of 2019. Rental demand is strengthening. Rents are rising. Demand for investment property is growing. The buy-to-let mortgage market is more competitive than it has ever been. Four key ingredients to create profit in the UK investment property market.
In this article, we discuss what makes these ingredients of success so critical, and the latest news headlines that indicate good times ahead.
Demand for Rental Property Grows
If there is only one person who wants to rent your property, you won’t be able to charge a premium rental price. On the other hand, if the demand is high, the rental price rises. This is a basic demand/supply economics. Rents tend to rise fastest when the demand for rental properties is highest.
The latest figures from ARLA Propertymark will make satisfying reading for landlords holding UK investment property. The number of people searching for homes rose again in August, to an average of 76 per letting agent branch from 73 in July. While the number of properties under management increased to an average of 199 per branch from 184 over the month, this is not enough to meet rising demand.
With this market dynamic, you would expect rents to rise. And they are.
Landlords Are Increasing Rents on UK Investment Property
It is easier to raise rents without resistance from your tenants if the demand for rental property is high. The ARLA Propertymark report found that rents have increased to a record level for a fourth month running in August. Almost two-thirds of agents witnessed landlords increasing rents. In Yorkshire and Humberside and the West Midlands, 80% of agents reported that landlords were raising rents.
The CEO of ARLA Propertymark David Cox said, “Although it’s positive to see that supply has risen, it is nowhere near enough to counterbalance the rapid pace of rising rents, which have reached a new record high for the fourth month running. Two-thirds of agents reported landlords raising rents last month, which is a significant increase when compared with the two-fifths of agents who witnessed rises in August last year.”
Overseas Investors Are Targeting UK Investment Property
We may all be fed up with Brexit, but the uncertainty surrounding it is encouraging foreign investors to snap up UK investment property. The uncertainty is keeping the pound weak against foreign currencies, and that makes UK investment property very attractive for foreign buyers.
The residential sector is seen as very attractive for investment opportunities. Proptech firm Commercial People has reported a significant rise in interest from foreign investors in UK property. The big cities of London, Manchester and Birmingham have been particularly popular. London, like the UK, is still considered a safe haven for investment capital – with solid rental returns and potential for exciting capital growth.
(By the way, I think that this demand will ripple out to commuter towns very quickly. Which is why property investment in Luton is a firm target for me today.)
Renting Property Is a Lifestyle Choice for More than Half of Today’s Tenants
One of the last things you want to suffer as a landlord is frequent and extended void periods. The longer a tenant stays put, the more profitable your investment is. The latest research from buy-to-let lender Landbay will be music to the ears of long-term buy-to-let investors.
It quizzed 2,000 private renters and found that 58% of private renters have no intention to buy their own home in future. Unsurprisingly, different age groups showed different attitudes to renting vs buying:
- 64% of 25- to 34-year-olds said they wish to buy in the future
- 46% of 35- to 44-year-olds are considering homeownership
- Only 13% of over-55s said they are thinking of buying in the near future
The research indicates that people’s priorities are changing. They want more flexibility and place greater emphasis on lifestyle rather than building a property nest egg.
The Buy-to-Let Mortgage Market Is Ultra-Competitive
Most buy-to-let investors fund their UK investment property purchase with a mortgage. First-time buy-to-let landlords have never had such a choice of mortgage products as they do today. According to an analysis by Moneyfacts, there are 1,474 such products this October. This is almost 300 more than at the same time last year, and the highest number on record.
More competition leads to lower interest rates, and lower interest rates boost the buy-to-let investor’s profit margin.
There is so much doom and gloom among the headlining news reports now – most of which are dangerous and opinion-based – that it is easy for the real news to get lost. If you only listen to the ‘experts’, you run the risk of failing to live in the real world. The buy-to-let market is not collapsing:
- Increasing numbers of people want to rent
- More people want to rent than buy
- Rents are rising
- Overseas investment is growing
- Buy-to-let mortgages are highly competitive
And there is no exodus from the buy-to-let market. Landlords are not flocking to sell their properties. In fact, ARLA Propertymark found that only four landlords per branch are considering selling – that’s around 2% of properties under management. Rather different to ‘expert’ predictions of 25% to 50% of landlords that would be selling up because of tax changes and tougher legislation.
If you are considering increasing your property portfolio, now might just be the perfect time to do so.
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