Renting is becoming more acceptable

13 August 2007

Dev Malle is director of mortgage distribution at Personal Touch Financial Services

A recent report from the Royal Institution of Chartered Surveyors revealed that in Q1 this year, only 16% of surveyors saw a rise in de-mand for rented property against 28% in October 2006. This was backed up by the British Bankers' Association, which reported a lower amount of buy-to-let applications despite the increase in approvals overall.

But the possible slowing demand from landlords needs to be put into context. In recent years, we have seen sustained rises in property value and buy-to-let has been the fastest growing mortgage niche. Landlords have moved from a focus on short-term returns to managing portfolios and pension planning. Many will look to long-term capital growth, even at the expense of funding shortfalls in rental income themselves.

Despite the recent base rate rises, a combination of product innovation and competitive pricing has made buy-to-let lending safer than other niche areas for lenders. There are, of course, factors that landlords need to consider when making buy-to-let investments, and regional variations in demand for rental properties and expected returns (UCB Home Loans publishes a good guide on this).

Once booming areas, such as Manchester, appear to have slowed due to an oversupply of buy-to-let properties - especially flats - while London continues to experience strong demand.

Houses appear to be outperforming flats nationally, mainly due to an undersupply of family homes. Alliance & Leicester recently predicted a rising trend for families renting as it estimates there are 17 million adults not on the property ladder. Working families are one group landlords should target when looking to invest.

Prime Minister Gordon Brown has stated that if more homes aren't built, the proportion of 30 year old couples able to buy property could fall from 50% today to less than 30% in 20 years' time. Migration as a support for the buy-to -let market can be a topic in itself. The Council of Mortgage Lenders statistics confirm that only a fifth of migrants buy a property in the first five years, while the rest rely on the private renting sector.

Combined with the predicted slowing in house prices, these factors point to a sustainable buy-to-let market where investors have made sensible decisions based on demand and return. By taking a long-term view, landlords have helped to foster a cultural acceptance of the rented sector similar to that which has long existed in Europe.