Buy to let sector unshaken by credit crunch

10 January 2008 / by Rachael Stiles
The buy to let sector is refusing to go down with the ship, maintaining a resilience to the credit crunch despite sliding property value and the rising cost of finance.

Nine out of 10 landlords said they have no intention of selling their properties for about 17 years, and, furthermore, four out of 10 have intentions to invest further in the private rented sector this year, according to a fourth-quarter survey of 2007 by the Association of Residential Letting Agents (ARLA).

"This is good news for the whole of the Private Rented Sector and for the housing market, particularly as it comes from surveys carried out well after the credit crunch had begun to bite," said ARLA’s Head of Operations, Ian Potter. "The rental sector is the lynchpin for all our housing requirements and needs continual investment from private individuals as it still suffers from a lack of investment from the institutions."

The survey comes amongst fears of that the buy to let sector could grind to a halt in light of the global credit crisis which has seen lenders tighten criteria and raise rates in line with their own difficulties in securing credit in the wholesale money markets.

Investors in buy to let property borrowed 70 per cent of the purchase price, on average, which is down from 74 per cent the previous quarter. More than one in six borrowers took out a buy to let mortgage for less than half of the purchase price. The average time that these investments are likely to last has been relatively consistent over the past three years, at 16.7 per cent, with only one in 12 expecting the investment to last less than five years, and just two per cent seeing it as a short term investment of less than two years.

The average buy to let investor has been a residential landlord for a little more than six years, and only two out of 10 have been landlords for less than a year; while the vast majority are cautious, some still bought off-plan during the last quarter, contradicting the advice given by ARLA that this kind of property investment "cannot make for a realistic Buy to Let investment proposition."

"The rental market is too fluid to make judgements on rental values and likely demand months or even years in advance, for property that has yet to be built," Mr Potter said. "We cannot repeat this warning often enough. The potential investor must take local advice from the professionals about the property, the way it is furnished and the realistic market rent."

The figures do not take into account the proposed changes to Capital Gains Tax which come into effect in April; 37 per cent of buy-to-let investors said they will not be influenced by the changes, but a quarter said that will sell some or all of their property investments.

Ian Potter concluded: "Any alteration in the reliefs could seriously damage the Private Rented Sector. It is only with the help of the refinancing by Buy to Let investors that the sector has become properly viable again although, even now, we are still experiencing a severe shortage of property."

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