Buy-to-let market booming
04 August 2003
A growing number of Brits are choosing to rent, leading to a boom in the buy-to-let market, according to new research.
A survey by UCB Home Loans, Nationwide's specialist lender, reveals that investment in rental property is now being seen as a viable alternative to pensions.
UCB Home Loans managing director, Charles Reed commented on the results, "Choosing to rent is becoming more acceptable for a wider group of people, particularly those who are young and single.
"Our level of home ownership in this country is one of the highest in the world, so perhaps we're now becoming a bit more European in being more relaxed about renting."
The survey shows that in areas such as Bristol, Northampton, Leeds, Manchester, York, Newcastle and the suburbs of a number of major cities, such as Birmingham and Nottingham, buy-to-let activity is increasingly buoyant.
Mr Reed pointed out that the buy-to-let market has increased rapidly in the past four years, and added, "Hardly anyone apart from professional landlords invested in rental property a few years ago, but it's now becoming the norm for an increasing number of ordinary people."
Figures released in March by the Council of Mortgage Lenders show that gross buy-to-let lending totalled £6.7 billion in the last six months of 2002, compared with £5.5 billion in the first half of the year and £4.1 billion in the second half of 2001. Around a third of these were re-mortgages.
Rapid house price increases have spurred interest in the buy-to-let market, where the combination of capital growth and rental income is an attractive proposition when compared with returns from other forms of investment.
Recent cuts in interest rates have also increased the attraction of investing in property.
"With more new landlords entering the market, there is beginning to be greater competition to find tenants in some areas," Mr Reed advised.
"This means that investors need to undertake thorough research to make sure that they buy the right type of property in the right area. Tenants benefit because competition dictates that landlords need to finish rental properties to a higher specification in order to maximise their renting potential."
The UCB Home Loans report indicates that rents have been rising gradually in areas of the country where they are relatively low and where there is a ready supply of tenants, but have remained static or have fallen in some areas- for example parts of London and the South East.
The study shows that rental yields vary from area to area, but landlords can generally expect to receive between 7 per cent and 9 per cent gross annual rental return in more active parts of the country, and nearer 5 per cent in areas where house price rises have slowed down and the ratio of landlords to tenants is higher.