Those who seek to analyse the fortunes of the UK property market from the point of view of buy-to-let lenders may possibly wonder how a downturn in the residential market can coincide with an increase in rents. After all, the boom in buy-to-let in recent years has occurred at exactly the same time that credit has been plentiful, house prices have been rising and the economy stable. Buy-to-let has appeared to be a child of the housing boom. How, some may ask, can it not now become an orphan?
Now, of course, the credit market has crunched, recent surveys have shown house prices falling and the state of the economy is more uncertain, with fears of inflation having to be balanced by the fear of a severe downturn when the Bank of England makes interest rate decisions.
How much the monetary policy committee agonised over its latest decision before deciding on a cut - not to mention how close the vote was - will become clearer when the minutes come out next week. But the buy-to-let market seems to remain confident, with Bradford & Bingley's recent survey showing that 95 per cent of landlords were positive about rental yields and 86 per cent were either looking to expand or retain their existing portfolios. Meanwhile, Paragon has said rents have risen by an average of 17 per cent in the last year.
Chris Horne, the editor of new landlords' website Property Hawk, has offered an explanation to square the circle. In the first instance, he stated, there was a very good reason why the property market of recent years should push rents up.
He explained: "There's a dual effect of rising house prices, which prices more potential first-time buyers out of the market - which means they have to rent, and rent for longer than they would have done. There's that dual impact, and that's what's tended to happen over the last few years."
In addition, he noted, there was a longer term trend over the past 20 to 30 years by which first-time buyers were getting older, meaning younger people rented for longer, thus expanding the rental market.
The key point, however, was that a reversal of trend in which 2008 became a year of falling house prices would not see a reversal of the renting trend: "If anything, the uncertainty with house prices will put off potential first-time buyers - on the basis that they could, potentially, buy a house cheaper later on."
Paradoxical as it may seem at first glance, this situation may be the reason for buy-to-let to stay optimistic. In addition to this, first-time buyers will not necessarily have an easier time of it next year, according to the Council of Mortgage Lenders (CML).
CML head of external affairs Sue Anderson said last week that the situation for such buyers was a "double-edged sword". On the one hand, it was indeed true that a slowdown in the market would ease affordability for many of them. But on the other, the economic uncertainty might be seriously offputting.
She commented: "First time buyers are going to be a group who are probably as vulnerable, if not more vulnerable, than everyone else to confidence issues and expectations of what is going to happen. They may feel a bit wobbly in light of what has been going on in the market."
In addition to this, Ms Anderson also suggested the credit crunch and the attendant tightening of credit strategies would make it harder for anyone with an adverse record to get a mortgage.
Thus it may be that the months ahead, while seeing a continued housing downturn, do little or nothing to reduce the currently high demand for rented property. Indeed, if Mr Horne's theory is correct, it may even be that demand will fall further, thus pushing prices yet lower. Expectations of more interest rate cuts may help delay first-timers' moves into the market as well. Thus the squared circle will also be a virtuous one for buy-to-let landlords.
In today's world Property investment is an excellent investment option especially investment in UKAbout AuthorJim Barnaby is a real estate investment broker and successful property investment adviser delivering research and selected UK and overseas property investment solutions with experience in spanish properties, french property investment, German property, Cyprus holiday homes, Property in Cape Verde, German property investment, cape verde property buy to let property
Source: ArticleTrader.com
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