Brokers must brace for B2L boom

As clouds gather over the world\'s equity markets investors are turning to bricks and mortar once more, meaning a busy period for brokers on the buy-to-let front, says Sally Laker

World stock markets are continuing to nosedive as fear of inflation and worries about rising US interest rates return to batter investor confidence.

This pattern would normally be interpreted across the board as a bad thing. But the dark cloud of inflation that is threatening to rain on the equity investor parade could have a silver lining for advisers working in the mortgage industry.

When the technology bubble burst in 2000, thousands of investors withdrew their cash from stock markets and piled it into buy-to-let investments. In times of uncertainty people look towards tangible investments and there is little that is more tangible than bricks and mortar.

Even taking the stark statistics at face value, we see that over the past 10 years house prices have risen more than share prices – 182% compared with 57% for the FTSE, according to Halifax.

After a while in the doldrums the buy-to-let market has shown recent signs of picking up momentum. Upbeat landlords are once again looking to purchase property, secure in the knowledge that there is tenant demand for the right properties at the right prices.

Demand is the key. And the demand for lets is being driven by migrant workers, a severe shortage of social housing and the fact that property prices have risen so rapidly that prospective first-time buyers are considering renting instead.

Rental rates have stabilised after easing slightly last month and now stand at the same level they were six months ago. This has sparked a resurgence of buy-to-let activity since last autumn, particularly among larger scale and professional investors.

Of course, it’s true that this is not a national phenomenon and demand differs according to how many prospective tenants a catchment area holds. But investors worried about the turn in the world’s stock markets and the effect that inflation will have on their savings will be able to sniff out good returns if they do their homework and identify buy-to-let hotspots.

For example, the East Midlands has the highest rental yields at 6.84% with Greater London offering the lowest yields at 5.78%. Yields have been squeezed over the past few years as house prices have risen faster than rents. They are still not back to the dizzy heights of a few years ago but in today’s market yields are not the only factor being considered by investors.

Investors are now more concerned with portfolio balance, security and planning. Being able to rely on a regular rental income at a certain rate makes it easier for investors to plan their next moves.

Investors need to find a safe port in a storm and now that the clouds are gathering over the equity markets it looks increasingly likely that property will offer that safe haven. So with investors looking for a safe resting place for their money, brokers could be in for a busy period on the buy-to-let front.