A quick trawl through last week’s Mortgage Strategy reveals differing views being expressed on the health or otherwise of the buy-to-let sector. On one hand we have Kevin Paterson of Park Row Associates warning that the sector could be in for a difficult time, supporting this theory with evidence from auctioneer Allsops that shows investment property repossessions now make up more than half of its properties for auction.
He notes that with interest rates exceeding 6% for buy-to-let properties, a rental yield of 5% takes a property into negative income territory. The resulting repossessions are accounted for by amateur landlords who mistimed their hop onto the property investment bandwagon.
Elsewhere there was a story claiming that the buy-to-let sector will remain buoyant because the entry of former communist states Bulgaria and Romania into the European Union will spark a wave of migrants who will need somewhere to live. Reports that buy-to-let repossessions are on the rise are “irresponsibly” wide of the mark, says the Association of Residential Letting Agents.
ARLA says industry data not only confirms that buy-to-let mortgages have lower arrears than mortgages generally but also that there are also fewer buy-to-let repossessions. Coming from such an established association that includes a powerful panel of buy-to-let lenders, such sentiments come as no surprise. But where does the truth lie?
Figures from the National Association of Estate Agents reveal that the rental market in Q3 2006 was buoyant. The reasons behind this were increases in property prices which act as a barrier to first-time buyers and the influx of Eastern European immigrants.
The number of reported empty dwellings in Q3 2006 compared with the same quarter in 2005 suggests an upward trend. The average number of vacant properties reported per agent in Q3 2006 was 14 compared with six in Q3 2005. But the lettings market has seen many significant changes in the past 12 months.
The introduction of houses of multiple occupation legislation, tenancy deposit schemes and the housing health and safety rating system will have significant impacts on the market. I tend to agree with the assessment that the buy-to-let market is destined for further growth.
The products are in the market – Moneyfacts.co.uk recently confirmed that the number of buy-to-let products had broken through the 2,000 mark and demand for them is expected to rise.
The only possible brake on the sector could be the number of vacant properties. This is estimated to be around 680,000 in England, concentrated in city centres. Property developers are blamed for buying these buildings and allowing them to stand idle.
This is distorting the market and there are already moves by the government to force landlords to rent out these properties. What difference, if any, a sudden surge in capacity will have on the buy-to-let sector remains to be seen. But overall I’m bullish about the sector’s prospects for 2007.