23-01-2008
A strong outlook for buy-to-let on the cards for 2008
by Gee Sahota
There is no doubt that property investors have been cruising in the fast lane for the last few years. All over the country landlords have been lining their pockets with healthy returns from their buy-to-let properties. No serious buy-to-let investor would have passed up the chance to buy a property or properties in such a buoyant market. In line with this growth, the landlord insurance market has also matured, offering a wider range and better priced premiums than ever before.
However the economic impact of 2007 has caused not only buy-to-lets, but property in general, to be the talk of the town now that a shake up of the market is expected.
Since August 2006, the UK has seen five incremental increases to the interest rate, which finally dropped by a quarter of a percent in November 2007 to 5.5%. The Bank of England’s Monetary Policy Committee held onto the 5.5% rate this month, which is good news for property owners, as it is likely there will be further reductions rather than increases in 2008.
Nevertheless, some consider that it may be too late, as the recent credit crunch continues to sink its teeth into the finances of consumers, making it harder to apply for mortgages. The rises in costs of fuel and food have also left homebuyers feeling more nervous about spending their money, and consumer spending over Christmas was a disappointment for many retailers.
No doubt the sub-prime mortgage crisis of USA has been the cause of much of this damage, with its effects reverberating across the globe and breaking the back of banks like Northern Rock. Borrowing money as a result is becoming much trickier, with banks more cautious to lend out - especially with the divided opinion as to whether house prices will stabilise or fall.
In fact, latest figures from Nationwide and Halifax report that house prices across Britain fell last month by 0.5%. This is the second consecutive month-on-month fall.
In the wake of the major economic decisions of last year, we have entered 2008 with an uncertain property market that is likely to leave would-be homebuyers feeling very hesitant about their property decisions. However for property investors there may be an opportunity to capitalise on this hesitancy, as long as it is with a view to riding out the shaky period and holding onto their property for the long haul.
Rental demand will keep landlords interested
According to The Royal Institution of Chartered Surveyors (RICS) high house prices have deterred potential buyers from entering the property market, which in turn has meant that demand for rented property has been steadily increasing.
RICS feels that this rise in rental demand has certainly encouraged buy-to-let investors to jump onto the property band wagon - a sentiment that is also shared by the Association of Residential Lettings Agents (ARLA).
With the popular speculation of a slow down in the housing market, and banks feeling more nervous about approving loans, potential buyers will either adopt the ‘wait and see’ attitude or be forced to remain in the rented property sector.
This all bodes well for the buy-to-let market as rental demand will remain high.
No matter whether prices declined or gained momentum again it is unlikely that the buy-to-let market would lose out.
Assetz also provide an optimistic outlook for the investment sector based on high levels of demand throughout 2007. Rents in the UK last year have risen by 10% to make the country's buy-to-let market the "strongest in the world", according to analysts.
Stuart Law, chief executive of Assetz, said: "While there has been much suggestion of a problematic era for the property market, there are many more positive signs for the year ahead, with the latest buy-to-let figures outweighing any negative outlook, as well as reflecting a hugely successful year for the property investor in 2007."
So the outlook for buy to let investors remains optimistic. Unfortunately, in the event that there is a significant fall in the market, it will be recent or novice buyers with little experience of a downturn who may suffer and as a result provide easier pickings for the serious investor.
For those who are already in the market, the key is to hold onto your properties and ride out the storm until a more favourable market paves the way to making further gains for the future.
And for those considering whether to capitalise on a possible downturn this year, smart investors will focus on discovering hot spots that will maintain healthy rental streams and still manage to see capital gain over the years. Areas such as M4 Corridor – Reading, Swindon & Bristol - growing university towns such as Southampton and regeneration areas like Middlesbrough are all considered to be potential growth areas.
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