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BUY TO LET LANDLORDS & PRIVATE RENTED SECTOR GROWTH - HELP FROM LETTINGFOCUS.COM

Why buy to let and the UK private rented sector will continue to grow. Plus the property hot spots to look out for by David Lawrenson of LettingFocus.com

To see where property investment is going, we first need to see where we have come from first.

Back in 1900 around 90% of all properties in the UK were privately rented. There then followed a steep decline so that by the end of the Second World War, about 50% of all properties in the UK were rented out.

The years of post war rent control took their toll which meant that little or no money could be earned from the business of being a landlord. Private letting collapsed further so that by 1988 private rented property accounted for only around 8% of the housing stock.

Since then things have changed massively. New laws in 1988 made it easier for landlords to recover possession and charge realistic rents. Then, i
n 1996, the buy to let mortgage was born and the proportion of houses which are rented from private landlords now stands at about 18%, though nearer 25% in London.

But how far will the growth of buy to let go?

Quite a long way possibly, as there are a number of factors that are pushing towards more privately let property.



LACK OF HOUSING SUPPLY

The UK population is growing rapidly – and the biggest factor in population growth is net inward migration into the UK, with a peak of around 500,000 new immigrants coming into Britain every year in the early noughties. And for them renting property is the natural default option.


Of course, renting is a also something of a lifestyle option that fits the “flexible work culture” - though some others would call it the “hire and fire” work culture  - that we have in the workplace today.

This, of course, was one of the reasons why the Government in 1988 and 1996 passed the Housing Acts because the thinking was you couldn’t very well get on your bike to find work if there was nowhere where you could park your bike at night.

 

FLEXIBILITY

There will be many points in people’s careers where they will need to rent because renting gives them more flexibility. This increasingly goes right across the careers board - students, lower paid workers and up-market executives.

As jobs for life disappear the speed of change increases and more and more people will need to rent to give them access to the jobs they want at the different points in their career.  

For others, staying in the property market will mean they will have a pied a terre in town for the week and go to their other home at the weekend. Some of these pied a terres will be rented, some will be owned as second homes.

Another sad factor is increasing family breaks ups which mean that more people will rent whilst they consider their options following a breakdown in a relationship.

And there is also evidence that more people will choose to rent as they delay starting a family, a factor that has been called "extended adolescence." Back in 1983 the Council of Mortgage Lenders found that about 80% of U25s wanted to own their own homes within 2 years but in 2014 this figure was less than 40% and falling.

 

OTHER ASSET CLASSES FOUND WANTING 

But investors increasingly like property and d
espite the credit crunch, people will increasingly look to property as a more secure investment than many other assets because many see the stock market as too volatile.

Many people were stung by poorly performing endowments, the split cap scandal and the collapse of Equitable Life but most of all, they don’t trust the government on pensions. And the closing of many final salary schemes is just one more reason why people look to property to provide a safe home for some of their money.

And while property prices appear ever stretched against incomes, average net property yields whilst lower now at about 4.5%, still compare favourably with equity yields and interest rates at the bank.



HANDOUT HOMES

Finally we have the concept called “Handout Homes.” The Future Foundation coined this phrase in a report they did which showed that money for first timer buyers is increasingly coming from parents and grandparents in the form of cash assistance with deposits (and ongoing “income help” to meet mortgage repayments.)

By doing this, parents keep the family assets out of the hands of the chancellor from an inheritance tax point of view - well at least it does for those enough who are well off to spare money in this way.

Some of this cash goes into buying a student house for while the children study. (There has been a big increase in the number of students in the UK over the last 5 years.)

For those without well off parents to help them on the housing ladder, owning a house could become increasingly impossible, forcing many people to rent, thus providing a ready pool of tenants and rising rents, for those lucky enough to have invested in property.



THREATS TO THE PRIVATE RENTED SECTOR

Apart from the obvious threat of economic decline, which would hit rental incomes and house capital growth there is a risk that the government could further regulate or impose special taxes on the sector.

The probability of this happening is hard to quantify. However, it is unlikely that the government would do too much to hurt the private rented sector which does so much to help drive the economy through its ability to drive labour mobility and house people dependent on housing benefits.

Despite the effects of the credit crunch not all parts of the UK will suffer. Look out for where regeneration in the shape of new jobs or improvements to transport links are coming. We particularly like anywhere on the new Cross Rail route in London.

ABOUT DAVID LAWRENSON AND LETTINGFOCUS

I’m David Lawrenson from property investment experts LettingFocus.com.

We work in a consultancy role with organisations helping them with their products and services for the private rented sector but we also offer a limited amount of unbiased advice for landlords too.

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Copyright 2011 David Lawrenson. This article must not be copied or re-used without the author and copyright owner’s prior permission. 

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