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Long-term buy-to-let 'in good health'


1st December 2006 | back to article listings BACK    print this article PRINT

Despite fears that that the November interest rate rise would hit the confidence of buy-to-let investors, a leading mortgage lender has claimed that landlords are continuing to benefit from stable rental yields and strong returns on their invested capital.

Due to the more fluid nature of the buy-to-let property market, landlords stand to gain more in times of low and stable interest rates as mortgage repayments are lower and people feel more secure about taking out a short term tenure.

However, the Royal Institution of Chartered Surveyors said recently that the climate of rising interest rates which the Bank of England chose to raise both in August and November has "painted the buy-to-let market as a less favourable investment".

Spokesman Jeremy Leaf commented: "With profit margins potentially reduced, affordability conditions could bite hard into investor's pockets and push up rents if interest rates rise further in 2007."

Nevertheless, the organisation did claim that investors had a "high level of confidence" in the long term buy-to-let market because of the low levels of selling activity.

The longer-term growth of the market was emphasised in a government report released last week which said that in the last five years, the percentage of households under 30 years of age buying with a mortgage had declined from 40 per cent to 34 per cent while conversely the proportion of those renting privately had risen eight points to 41 per cent.

Furthermore, the transience of modern housing arrangement was highlighted by the fact that nearly two million UK households (roughly equivalent to ten per cent) were found to have been resident at their current address for less than a year.

Commenting on these figures, Nigel Terrington, chief executive of the Paragon mortgage lenders, said: "We have seen steady activity on the part of residential property investors, who are growing their portfolios in response to additional demand from a variety of different types of tenants, including foreign migrants, young professionals, families and students."

He added that despite the rate rises this has been good news for the buy-to-let market: "With this solid demand, rental yields have remained steady over the past six months at six per cent despite house price increases."

Meanwhile, David Bexon, managing director of SmartNewHomes.com, said that he does not expect interest rates to rise any further.

"Interest rates will stabilise following a further rise in the spring, dropping back by 0.25 per cent in 2008 and I would urge the Bank of England to think carefully about the impact of future rises on the more vulnerable groups at the lower end of the market," he said.


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