Foreign investors have begun investing in the residential lettings market within London. They have expanded from commercial property investments in the capital.
This flow of financiers has boosted Britain’s buy-to-let market. As a result, house prices are remaining steady whilst rents are being pushed up, and first time buyers are priced out.
Ray Boulger is a mortgage specialist at John Charcol and comments that landlords are swarming out first time buyers. He also states that if buyers weren’t challenging landlords, then prices could be affordable.
First Time Buyers Competing with Landlords
The revival of the buy-to-let market and a shortage in housing has led to a sharp increase in rents. The growth of lenders making more buy-to-let deals available has stemmed from this rise in rents.
Rents reached a record high this year with the average price per month at £725 in July.
Discouraged first time buyers in the private rented sector, alongside a lack of lending to those without substantial deposits, has forced a drive in rents. Competition for properties is also allowing landlords to increase their rental prices.
As a consequence of this situation, rents are rising notably quicker than overall inflation. Wage growth was at 2.6% in July while house prices fell 0.6%. These figures have attracted buy-to-let landlords into the market.
Buy-to-let is also tempting to lenders as well. Low interest rates are helping in keeping arrears and repossession rates below those in the owner-occupier market. Greater availability of buy-to-let deals is enabling landlords to out-compete first time buyers.
Arrears rates are 1.56%, below the average of 2% for the whole market. With these rates down, lenders are more confident in this sector and are meeting the need for finance from investors.
In 2011, lending grew by 40% to £14bn and rose by 20% from March to June this year based on the same period last year.
Yields were at 5.3% in July, and with rents still on the rise, buy-to-let generates greater returns than lots of standard investments. As a result, private landlords hold 12.8% of the UK housing stock, compared to 10.5% before the recession. In 1999, this figure was at just 1%.
It is expected that the owner-occupier market will fall further as the responsible lending requirements of the Financial Services Authority will force more people into rented accommodation.
The idyllic property-owning democracy is now loosening, as just 66% of houses are owner-occupied, compared with 71% in 2003.