Assetz® News - Plan B for investment

Plan B for investment

19th September 2008 |

In recent years many sceptics about the benefits of buy-to-let have argued that when people have invested in property in such a way, they have had a detrimental effect on the housing market, reducing the stock of homes available for people to buy as owner-occupiers and therefore inflating prices.

Proponents of buy-to-let have suggested, on the other hand, that such a view is too simplistic, as renting rather than buying suits an increasing number of people, justifying the expansion of the rental sector.

Now, new evidence has emerged to show that the situation is more complex still, indicating that for some people looking to get on the ladder and purchase their own home, becoming a buy-to-let landlord is in fact the way to do it.

This point was made by organisers of the Property Investor Show after research ahead of the event in London next week. It pointed out that some Londoners have actually used the novel strategy of buying outside the capital while continuing to live as a tenant in London.

It gave the example of investor Luke O' Neill, whose response to high London prices was to buy a £155,000 two-bed house in Bury St Edmunds in Suffolk to let out.

He explained: "The rental yield for the property is five per cent and the monthly rent goes towards the mortgage on the house, and it also leaves me with a little extra, which I put into a savings account to help build enough for another deposit.

"Although I have no intention of selling the property yet, when I do, I am confident I will get a healthy return on my investment, which will go towards buying my dream home in London."

Such a strategy is a wise one, according to Nick Clark, the manager of the Property Investor Show, who said: "There are some great opportunities for buyers at the moment, as prices have dropped considerably and rental yields increased." This would also help ensure that people can get on the property ladder before prices start rising again, he added.

Figures from the Department for Communities and Local Government (DCLG) this week have encapsulated the scale of the difficulty people have getting on the property ladder in London. Its house price figures for July showed the London average house price to be £343,182, whereas the average for the whole of England was £224,207. Another set of DCLG figures, published today, showed that in the financial year of 2006-07, 70 per cent of households were owner-occupied. This figure dropped to 56 per cent in London. By comparison, the proportions of private renters were 20 per cent for London and 13 per cent across England.

The house price circumstances of London make it the most obvious place in which those looking to get on the ladder can invest in the way that Mr O' Neill did. But wherever there are differences between regions and even districts within a region (such as the more fashionable and less fashionable parts of a large provincial city), the same could apply. All of which shows that the relationship between buy-to-let and home ownership is more complex and varied than the simplified conflict situation some critics have claimed.