Assetz® News - Buoyant future for buy-to-let investment

Buoyant future for buy-to-let investment

29th March 2006 |

Residential property investment may well be boosted by the introduction of real estate investment trusts (REITs) in January 2007, but it is already proving to be a top investment choice for those favouring the buy-to-let option.

According to research from the Council of Mortgage Lenders (CML) the number of advances made in the second half of 2005 increased by 40 per cent compared to the previous six-month period.

There was also a 47 per cent increase in the value of these loans and at £14.6 billion, this was the highest ever recorded by the CML for buy-to-let advances.

It all points to the staggering levels of confidence among buy-to-let investors at the moment and experts are predicting it is only set to escalate in the coming months and years.

It is perhaps unsurprising given the current demand for rented accommodation. With an increasingly mobile workforce, renting a property is becoming a must for many professionals, while young couples and individuals are also finding they can only finance a property purchase at a later stage in life, with house prices continuing to rise.

The Royal Institution of Chartered Surveyors (Rics) has noted that the three months until January 2006 saw the most significant increase in demand for rented accommodation in four and a half yeas. In addition to the rising property prices, Rics points to much stronger economic conditions in the last few months.

Buy-to-let is becoming more popular each year and it is a means of investment that certainly seems to appeal to UK residents.

There are a number of specific things that need to be considered before opting for a buy-to-let mortgage and the Council of Mortgage Lenders says that researching the market is the most important of these.

It is clearly imperative to decide the kind of tenants that you wish to attract, while location is also an issue, with different areas in the UK providing varying levels of returns.

Buy-to-let investment is also generally seen as a long-term commitment, with revenue gained through both rent and capital gains, as most investors hold onto their properties for 15 years or more.

The longevity of the investment project seems to be one of the most attractive aspects of buy-to-let for many people and with the Office of the Deputy Prime Minister (ODPM) speculating that the number of households in England will rise at a rate of 209,000 a year until 2026, demand in the rented sector will only increase in the foreseeable future.

John Heron, managing director of Paragon Mortgages, suggests that much of the demand will come from single person households, while lone parent households and other multi-person households are also likely to sustain high levels of interest.

"CML lending data, survey reports from the surveying profession, household predictions from the ODPM and factual evidence from our own book all tell the same upbeat story. The trends in the private rented sector are clearly positive and buy-to-let is looking rosier than it has for some time," added Mr Heron.