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The Rise of Buy to Let
The buy to let market has changed drastically over the last ten years. In 1998 only 29,000 buy to let mortgages were arranged worth £2bn. A recent report states that there were 171,800 buy to let mortgages in the first six months of 2006 worth £21.2bn.
The market has grown a lot over the past five years because far more people are aware of it. Investors have seen how much can be made from buy to lets and many use it to supplement their pension that has of course helped the demand.
It is now obvious that supply is less than demand but the buy to let sector has been able to respond to the need for good quality accommodation.
The demand comes from first time buyers that are putting off purchasing property for the time being and immigrant workers plus those wishing to live on their own and the ever increasing number of students.
The Council of Mortgage Lenders reported that the growth in the buy to let market has helped to improve the quality of rental accommodation. In 1996 30.4% of rented homes in the private sector met the governments decency standard by 2004 this had risen to 48.1%.
It is expected that the buy to let market will remain strong to the existing lenders as it has better credit ratings with better returns and low losses compared to other mortgage lending.
An area lenders may wish to concentrate on is buy to let portfolios of ten to fifteen properties. More experienced landlords building up portfolios of properties and product innovation may be an area for development.
Covering Rental Shortfalls
The number of buy to let investors turning to invest in multiple occupancy premises is increasing. It is a way of getting higher rental income to cover shortfall yields in other properties in their portfolios.
Rental income has not kept up with property values and buy to let investors are looking for ways to supplement the shortfall of their mortgages.
Some investors are buying multiple occupancy property to increase the yields that they can bring in other investors are hoping these properties will prove to be a way of covering their mortgage shortfalls.
From an investors point of view multiple occupancy property is a good deal especially for those who want quick returns.
It is considered by some that this type of investment is better suited to the more experienced landlord and need to be part of a balanced portfolio.
Rent Rise Boost
Buy to let total returns trebled to 21% last year.
January’s index reports incomes rose by 2.5% in December giving an annual growth of 19.4%.
Tenants now pay on average £965pm whereas a year ago they were only paying £808pm.
Even though house price increases dropped slightly rents remained buoyant and led to an increase in yields by the end of the year. December saw yields rise to 6.2% after having remained at 6% for the previous five months.
2008 prospects are good with landlords planning to increase their portfolios because of the growing demand for rental properties.
Consumer confidence has been knocked recently but this seems to have helped landlords to generate high returns. Rents rose higher and faster in 2007 than since the index was formed in 2001.
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