Assetz® News - Invest in bricks and mortar

Invest in bricks and mortar - but what sort?

30th October 2007 |

Property investment in buy-to-let has been a growing phenomenon in Britain for over a decade now. The development of the market has come at the same time as changing population demographics and housing patterns have become increasingly apparent.

Of these, the most notable two are a shortage of homes and a shrinkage of household sizes. The latter is a continuation of a longer-term trend and the former a consequence of it, since the shortage has only recently been partly caused by a swift population increase. The result is that more people are living alone or as couples with no children as family sizes both shrink and young people settle down and have children later.

This has occurred at the same time as new housing developments in many areas have tended to concentrate on buildings built for smaller or single-person households. This has especially been the case as more and more apartments are built in and around city centres.

Buy-to-let investors may therefore be interested to know that theirs is an industry which has increasingly found itself concentrating on such homes. A survey by Paragon Mortgages of property portfolios has revealed some interesting differences. Flats make up 46 per cent of these holdings, whereas in contrast semi-detached homes make up only 13 per cent. In between, terraced houses account for 34 per cent.

Paragon notes that terraces are good investments because they bring the highest average yield - 6.4 per cent. Of course, what sort of property to invest in may depend on the nature of an area, as John Heron, managing director at Paragon, explained: "Small terraced houses, flats and maisonettes are popular rental property types amongst certain tenant groups - such as young professionals and students - particularly in busy cosmopolitan areas. In places where there is proven demand for this type of property, landlords can command high rents and attractive yields."

Thus it makes sense for investors to be looking for flats for professionals in or near city centres, or multiple-occupancy accommodation near university campuses. Mr Heron added that in some cases there was a demand for semi-detached homes in the suburbs, such as in cases where people with families had moved to London to work for a finite period of time. The key, Mr Heron added, was to research the market in any given location.

Of course, some are knocking the buy-to-let market just now, arguing that the slump in the housing market as a whole will be detrimental to the industry, but other figures from Paragon suggest otherwise: Rents have gone up by 6.9 per cent on average in the past year, housefund.co.uk reports.

This, the Daily Telegraph reports, is the main reason why buy-to-let will cope well with any slump. Predicting a rise in repossessions of 1990s proportions, the Council of Mortgage Lenders this week suggested that this would further drive up rental demand and with it rents. All this suggests there's no need for investors to stop buying flats and terraces just now.

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