Why Buy to Let

A brief History

With the introduction of the 'Assured Shorthold Tenancy Agreement' and other legislation changes in the Housing Acts of 1988 and 1995, lenders saw that Landlords now had the protection that they had been lacking.  So in September '96 the buy to let initiative was launched by the Association of Residential Letting Agent (ARLA) together with a panel of four Lenders with the aim of a sustainable expansion of the private rental sector.

The Buy to Let lending figures produced by the Council of Mortgage Lenders (CML) shows just what an impact this initiative has had.  Buy to Let lending has increased from £3.1bn in 1999 to £12bn in 2002 and estimates of final figures for 2003 are approaching £16bn.  Another huge influence is the falling interest rates, from 7.5% in 1998 to today's 3.75%.  This has helped lend to the significant growth in house prices we have seen over recent years.  (25.3% in 02 and 15.6% in 2003 – Nationwide B Soc).

Current Market Conditions 

Today there is much talk about melt down in the Buy to Let market place caused by escalating increases in property value, over supply of rental property and predicted increases in interest rates.  However, at ABC we share the view of many industry experts that the buy to let market will continue to thrive whatever the external factors.

If you look at the housing market during recession people are more likely to rent than buy, particularly first time buyers, and if prices are static or even falling, investors will be able to buy at a more realistic price and with the higher demand for rental properties, yields will, if anything, increase over and above those we have seen in the buoyant market of the last few years.  Likewise if interest rates increase, first time buyers in particular are more likely to stay in rented accommodation, producing the same result for the investor as above.

Future Trends 

It is our view that buy to let continues to be a sound long term investment, especially as a report by Paragon in 09/03 showed rental yields at record levels and ARLA report increasing numbers of new tenancies, together with the ongoing potential for capital appreciation.  Halifax report a 19.2% increase in average house prices over a 12 month period (to 09/03) and 306% over the last 20 years.  By comparison, in recent years we have seen huge stock market declines, pension and endowment mis-selling scandals and extremely poor returns on deposit based investments.

Over the coming year, Halifax have predicted house price inflation of 8%, backed up by Nationwide who have forecasted inflation at 9%.  Rather than the idea of a 'boom' and 'bust' situation, it seems far more likely that there will be a soft landing for the housing market with 6% inflation still being achieved in 2005.

Another significant boost to this market seems likely from April 2005 following Gordon Brown's announced plans to let pension funds invest in residential property.  Many experts predict that this could lead to large amounts of money pouring from the stock market into buy to let property.

Halifax has predicted that the average house price in 2020 will be £330,643!