Rental demand surge provides new buy-to-let opportunity
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Nick Says…
The reality is this… as it becomes more difficult to purchase property (from am owner occupier’s point of view) the rental market starts to get stronger and this can only be good news for us landlords.
This article really compounds the science behind an investment strategy. There are too many “pundits” out there that have no idea the massive difference between a tactic and a strategy. A tactic is a manoeuvre that driven by the short term and a strategy is a collective of these that gets you to where you want to be over a given long term.
These “pundits”, therefore, are giving opinions on an investment strategy using information that is, by it’s nature, misleading to that goal by using short term information.
The overall picture, in my mind, is this: - Yes there is a “slowing of the market”, therefore, builders are not selling as many houses as they should… in my mind the tactic should be, buy as many as you safely can as there is a sale on. Lenders are putting the interest rates up and/or pulling products due to the American “credit crunch”… in my mind the tactic should be patience, soon they are not going to be lending as much as they were used to, therefore, they will start to release very good products too entice us back in to them (remember their business is lending money, so if their not then they have no business). Etc etc.
So based on the above how can you dictate or predict the property market over a short term? You can’t. What we do know is this, over the medium to long term I think it’s fair to say that investing in property is a safe, therefore, you’re strategy is safe. What you need to do, however, is take advantage of the tactics of acquisition and to do this you need to filter out the “pundits” view and see the opportunities as they are.
This article does.
To read some commentators recently, one might have gained the impression that buy-to-let in the UK was about to bite the dust as increased borrowing costs put a squeeze on the industry. But new evidence has suggested this is far from being the case.
It is true, as the Daily Telegraph reports today, that lenders have been putting up their buy-to-let lending rates, with Advantage and Edeus doing so this week after Northern Rock plus Alliance & Leicester did so last week.
Such moves, the paper reports, have been prompted by the difficulties faced by some mortgage lenders following the sub-prime crisis. But to suggest that these increases, such as the Northern Rock rise from 5.69 per cent to 5.79 per cent, or the Alliance & Leicester hike from 6.94 per cent to 7.49 per cent, will bring the market tumbling would be to take this news in isolation.
Rather than do this, a broader analysis would show that other factors, far more favourable to the market, are at play. In particular, the overall increase in borrowing brought about by five Bank of England base rate rises in the last 13 months has raised borrowing costs to a point where a squeeze on the residential mortgage market is apparent. Noting the overall drop in mortgage lending between June and July and a seven per cent fall in borrowing by first-time buyers, Michael Coogan, director general of the Council of Mortgage Lenders (CML), has acknowledged that "the long-anticipated slowdown in the housing and mortgage markets may now be beginning to materialise".
The effect of this on the buy-to-let market has been established by the Royal Institution of Chartered Surveyors (Rics), which has found that in the last quarter 29 per cent more chartered surveyors were reporting a rise in tenant lettings than a fall, compared with a 15 per cent difference in the previous quarter. Rics has concluded that "declining accessibility, rising uncertainty and a slowing housing market" has brought about an increase in rental demand as people put off entering the housing market.
As a result, demand for rented property is on the rise, exactly the sort of thing that should encourage investors. Rics spokesman Jeremy Leaf commented: "Current economic uncertainty has created an ideal platform for buy-to-let investors to cash in on rising rental levels. Many would-be buyers have decided to wait and see how the interest rate cycle will affect the market."
Mr Leaf added that higher rents would also provide "some compensation" for those buy-to-let landlords who are feeling the pinch from higher borrowing costs.
Thus a more balanced view of the prospects for buy-to-let can be established by noting both sides of the coin and how they affect the industry. What must also be understood is that what constitutes a good investment now is not necessarily the same as when the buy-to-let market was a new, small segment of the property sector.
Speaking to This is Money this week, Tinas Huelin, a buy-to-let millionaire, explained: "In 2000, you could get a yield of 20 per cent or more. That was a good income. Today, I aim for eight per cent". Her point was that, as the market has matured and the best bargains have been snapped up, the large returns possible on investments made when the buy-to-let market was fresh, new and booming were never likely to last. Thus the investor now needs to be more astute. But, as the Rics figures have shown, the market is still on the rise, meaning the opportunities to be successful are still there.
Hi Nick
Hope you are well.
Have sent a couple of e-mails re finance. not sure if you received them.
Sure you are really busy so will wait to hear.
Very keen to move on with your help.
Take care,
Denise x
Posted by: Denise | September 14, 2007 at 02:47 PM