Planning on letting your property? Not everyone with the necessary financial resources to enter this market wishes to become a landlord, but in recent times a growing number have decided that the rewards justify the effort.
During the boom decade 1997 thru 2007, Buy-to-let became big business in the UK. Money was so easy to borrow house prices rose so rapidly, that buying a property to rent out seemed a no-brainer. There were professionals who started buy-to-let mortgage advise companies. In “normal” times this had been an activity left to those few individuals who were very property-savvy and approached it as a business. Then within a few years up to one million Britons got in on the act. Financing deals became easier. Loans that in the past had required at least a 25% deposit now required much lower input. Rent to mortgage interest cover used to be 125% but this fell to 100% and buy-to-lets became little more expensive that residential loans.
It’s no surprise in the financial climate of 2012 that this is one party at which the champagne has gone very flat. In fact by 2009 market indicators reported that the availability of buy-to-let mortgages had shrunk to only 5% of what it had been only two years previously. Now in 2012, despite the fact that theUKeconomy is still in a parlous state, buy-to-lets are rising significantly again. The main driving force behind this is an obvious one.
The general squeeze on credit and consequent reluctance of the banks to lend freely has caused the property market to stall. First-time buyers are finding it very difficult to get their feet onto the property ladder and the lack of their pressure from the bottom of the chain of ascending ownership has affected the market from top to bottom. If you can’t buy you must rent and an increase of demand for rental properties has been inexorable. Where there are customers there will be someone to serve them, and landlords are a growing class.
Analysis on a server somewhere has crunched the numbers for the Royal Institution of Chartered Surveyors (RICS) and shows rents rising in the three months leading up to April 2012, and that this trend was driven by increasing demand. Professionals also expect rents to continue to rise over the next three months. A spokesman for the Royal Institute of Chartered Accountants says: “The rental market is still fairly buoyant and this looks likely to continue, given the challenges facing the sales market. This points to tenant demand continuing to outpace supply. As a result, rents will remain on an upward trajectory, adding to the pressure on many households whose incomes are already being squeezed.”
We are seeing landlords’ rental yields growing in the early part of 2012 and it’s no surprise that demand for investment properties remains strong. Landlords must pay a capital gains tax of 18% or 28% depending on other details of their income but demand looks set to remain robust for the foreseeable future. It’s unsurprising, therefore, that recent figures from the Council of Mortgage Lenders (CML) showed that a total of 32,300 buy-to-let mortgages were taken out in the first quarter of 2012, worth £3.7 billion. This represents a 32% increase on the same period a year ago. The CML also reported that buy-to-let mortgages now represent a larger share of the mortgage market. There are 1.4 million buy-to-let mortgages in the UK – around 12.8% of total outstanding mortgages.