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Buy to let mortgage providers expect 40% boom

6th September 2005 | back to article listings BACK    print this article PRINT

Mortgage providers are gearing up for an anticipated boom in the buy to let market, predicting 40 per cent growth in the private rented sector. Within the next eight years, Britain's rental sector will rise by a million homes to 3.5 million, the Centre for Economics and Business Research believes.

The anticipated boom has seen many financial groups, previously wary of the buy to let property investment sector, eyeing the markets future prospects greedily.

"The buy-to-let market has been widely misunderstood by investors and analysts," Nigel Terrington, chief executive of buy to let specialist Paragon told the Times. Arrears and repossession rates were lower than in conventional mortgage lending and yields for landlords remained high, Mr Terrington added.

Banks have changed their attitudes in response to a maturing and developing market, an Alliance and Leicester spokesman said, announcing that the company would be making a return to buy to let mortgage provision: "There were a lot of people in the buy-to-let market who did not understand the risk they were taking on".

Buy to let analysts have also pointed to changing demographics, such as immigration, an increase in single person households, and the increase in house prices as a source of added demand.

Many young professionals who have been priced out of areas in which they wish to live have begun to opt for renting in upscale areas until they have risen up the property ladder, recent studies have shown.

Most significant, however, is the imminent change in pension funds to allow Self Invested Pension Plans (SIPPs) property investment. Research carried out on behalf of the Property Investors' Show has estimated that more than £6.5 billion is likely to be invested in property during the first year following next April's SIPPs changes.

The Council of Mortgage Lenders (CML), who track developments in the mortgage market, said that buy to let mortgage lending rose to £10 billion through the first six months of the year, a small increase on 2004.

"Our half-yearly figures suggest the market is in robust shape, and the recent cut in interest rates by the Bank of England will serve to buoy up the sector in the coming months," said Andrew Heywood, senior policy advisor at CML.

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