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Today's Property Providers...
Historical Factors - Stimulating the
Enthusiasm for Uk Property investment in Buy to Let was originally achieved
through the Government�s introduction of the Housing Act in the early 1980�s;
this allowed the �right to buy� and introduced the mechanism for landlords to
regain possession. As a result, mortgage lenders responded with flexible,
competitive and tailored products for private investors needs. As house prices
rose in the 1990�s, a high proportion of first time buyers became squeezed out
and forced into rental accommodation - this �catch 22� created more demand for
Uk property, pushing prices up further still. Buy to let mortgages are now worth
around �10 billion per annum. At the same time, demand for rented Uk Property
rose due to demographic population changes - the old �job for life� analogy
disappeared as employment became less secure, (union power decreased throughout
the 80�s) and IT and services growth created well paid, temporary, flexible,
geographically mobile, employment contracts.
Affordability Today - Today, the rental
sector is directly linked to house price affordability;- when house prices rise,
rents go down (and vice versa). Worryingly, Uk property prices have increased to
5.8 times the average income (December 2002), (close to the bubble busting peak
of the late 80�s) compared with the long-term average of 4.2. During the 1980�s,
80% of average net disposable income was made up of mortgage payments - no
wonder the housing bubble burst then. In 2003, the proportion is only 25% (but
rising). So there is strong consumer confidence despite the growing gap between
incomes and property prices � people are knowingly stretching themselves, egged
on by low interest rates, re-mortgage deals and low unemployment. Price
increases now mean a lot of first time buyers today cannot afford (or refuse) to
get on the housing ladder and so rent instead. Similarly, many prospective buy
to let investors feel very nervous about entering the market � fearing
short-term market collapse in confidence/ Uk property prices resulting in
falling rental yields or even negative equity. Media speculation fuels the
concerns.
Long Term Outlook - Despite these short-term
worries the Long-Term Future looks more positive� It is probable that long-term
Uk Property price inflation will be sustained (albeit at a much lower growth
rate and perhaps with a short term correction) as well as massive growth in
rental demand. Private rental properties now account for only 11% of all UK
housing (approximately 2.3 million homes) and this is estimated to grow to
around 20% over the next 15 to 20 years! This massive growth is due to a
Combination Of Reasons;
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Huge population growth of five million people by
2025 � ageing population and asylum seekers.
-
Chronic supply shortages of new properties
(relative to demand) due to Government policies
-
Millions more single or divorced people predicted
to be living alone
-
Low Eurozone interest rates convergence as the UK
battles against Global recession
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Increased number of student�s nationwide
demanding short term, off campus accommodation
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A mobile workforce that demands short term
housing to meet increasingly flexible needs
To sum up, the UK economy is currently fragile and
sensitive to any drop in consumer confidence. One concern is that if Property
prices keep rising at such high growth rates, homes will become too expensive
beyond the reach of ordinary people. The other obvious concern is that the
market is over valued and a rise in unemployment or fall in consumer confidence
could lead to a price collapse. However the long-term demand for rental Property
remains very good. Do not be put off by short term speculation; when considering
your entry into the market as a landlord, letting should be thought of as a
Medium to Long Term Investment Vehicle when trying to understand and quantify
future risks and rewards of Buy to Let.
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