Housing market triggers investment boom
The UK housing market is changing rapidly, radically and some believe permanently. Rising property prices, shortage of mortgage funds and the high level of debt that young professionals now carry has resulted in a collapse in first-time buyer demand. This represents a striking investment opportunity for those in a position to consider buying to let.
First-time buyers are few and far between as conditions have conspired against them. Average first-time purchase prices have risen by 8% over the past 12 months – that’s £12,541 on the average first-time purchase price which now stands at £178,370. With lenders insisting on high loan-to-value ratios i.e. large deposits, it is only the lucky few who are able to make their first purchase in their twenties.
As a result, the housing stock that is typically associated with new entrants to the market is increasingly being picked up by private landlords who are looking to exploit the disconnection between supply and demand in the sector. At a time when interest rates offer little inducement to save, the prospect of a rental income plus a potential capital gain is an attractive proposition. It is these investors who are pushing up the prices of smaller properties with the effect that conditions become ever more difficult for would be entrants to the market.
The prospect of having capital tied up in bricks and mortar has historically acted as a disincentive to some when it comes to buy to let, but the advent of direct purchase agents guaranteeing a fast home sale means that the downside risks of having funds tied up in property are now considerably less than they once were.
A recent report by accountants PwC has suggested that new homebuyer numbers will continue to fall over the coming decade. The PwC report suggests that by 2025 as many as 25% of all households will rent from private landlords, with the vast majority of those aged in the 25-39 age category.
From an investment point of view the conclusion is clear. In a market where private rental is the norm, the risks of letting are reduced as the role of private landlord is normalised and the administration of landlord-tenant relations is likewise provided for on a routine basis. For example, increasing numbers of insurers, lenders, property management agencies and estate agencies are tailoring their services specifically at private landlords. In short, there has never been a better time to invest in buy-to-let.
The number of first-time buyers recorded in 2014 was 300,000 which is a sizeable drop from the half million recorded in 2013. It goes without saying that the people who represent the missing 40% still require some form of accommodation. More and more of them, inevitably, are seeking rental properties. And here again the market works against them. An increased demand for rental property pushes up rents which in turn ramps up the value of the properties which they might otherwise have been able to buy.
That unhappy scenario for Britain’s young adults is a golden opportunity for those fortunate enough to have already secured their place on the housing ladder.