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Buy-to-let exposed at lunch

John Heron, managing director of Paragon Mortgages, gave an insight into the latest trends at a high level lunch meeting of property professionals involved in corporate and institutional residential property investment.

Heron was the major speaker at the second Quorum Lunch held at Quagalinos in London on September 23, where he outlined the issues likely to be faced by those involved in the private rental sector and what the buy-to-let market could offer in the future.

The event was organised by residential management company CCRE Touchstone and was attended by some of the major names in residential property letting.

Heron revealed that the private rental sector now accounts for 10% of total housing stock and has seen a steady climb since 1988.

Factors contributing to this include continued levels of inward immigration, an ageing population, the governments higher education policy, job mobility and peoples lifestyle choices. At the same time, house building have not kept pace with demand, which he said has added pressure on current housing stock.

He also highlighted several factors contributing to the recent increase in the demand for rental accommodation.

Rising house prices coupled with a 500% increase in student debt in the last ten years (and anticipated to reach an average of 33,708 by 2010) makes rented accommodation more attractive to those constrained by their finances.

While studying the majority of students rent, so with UCAS application up 11% in the last five years demand for rented accommodation has also increased.

The number of first time buyers has also declined.
In addition, a decline in the public rental sector because of a fall in local authority housing, the impact of tenant purchases and flat housing association stock levels has added to the increase in demand for private rental accommodation.

In terms of investment returns (before capital growth), Heron reported that gross rental yields are currently running nationally at 5.3% according to the Association of Residential Letting Agents.

He also said that the average professional landlord owns 12 properties but there are some substantial investors, as just 13% by number own 74% of total stock.

He was also pleased to be able to report that the Survey of English Housing recently found that tenant satisfaction with landlords stands at 78% in the private rented sector and now exceeds the rate for both local authorities (67%) and housing associations (74%).

Tim Saunders, from CCRE Touchstone, says: “With a growing number of professional investors now entering the market, the Quorum lunches have been designed to help new investors get to grips with the unique dynamics of the market.

“We want to help demonstrate that residential property investment is no longer the cottage industry it once was, that the information is now there to help guide investment decisions and that there are a number of professional organisations, including our own, which can provide the on-the-ground management required.

“It was helpful to hear the views of someone with Johns experience and reputation, and his talk prompted discussion and debate on how we can all ensure the private rental sector has a very promising future.

“I very much hope these lunches will provide a chance for existing investors to get together on a regular basis and a forum within which we can encourage the increasing interest in this ever growing sector.”

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