The buy-to-let sector has grown considerably over the last few years having grown consistently since 2006. The Council of Mortgage Lenders figures show that in June 2006 6% of mortgages were buy-to-let but by the end of 2014 the figure had risen to 14.4%. Also in November 2014 17,700 buy to let loans completed as opposed to 25,900 first time buyer loans.
With the rapid growth of buy to let with over 1.2 million private landlords in the UK is this sector going to continue to grow and perhaps in the future out pace first time buyers loans or has it reached saturation point? Buy to let investors are not universally popular and are often blamed for forcing up house prices and preventing young first time buyers from entering the market. Also there is growing resentment towards the 9 billion tax relief on the mortgage interest they receive.
It could be argued that this group of people would be an easy target for political parties at the next election with the think tank Civitas suggesting rent controls. This would mean that the landlord would agree not to increase the rent by more than inflation, and that the tenant would have the right to remain in the property for as long as they wish. If this idea takes off, it will be good news for tenants as it gives them total security of tenure with rents that will not rise in real terms. However, the gain for tenants could spell disaster for some landlords who may have bought their property to possibly move into at a later date, or perhaps sell on with vacant possession. Whereas under the Civitas idea of the market, I believe they will have to sell the property with a sitting tenant in it and this almost certainly will reduce the amount they receive from the property as they will be selling only to buy to let landlords. Also if this idea does take off it is possible that interest rates could rise more than inflation, but because the rent is capped the landlord cannot reflect this and it could cause financial hardship for the landlord who may then be a forced seller.
However, as mentioned earlier the sector has grown significantly and many commentators believe there is more growth potential. I tend to agree with this assessment provided the buy to let sector does not become a political football with rent controls being applied. Lenders have introduced their most competitive range of buy to let products yet with five year fixed rates as low as 3.59%. This sort of rate will allow people to plan ahead long term knowing their mortgage outgoings for the next five years and should give landlords a fighting chance of making a success of their investment. So as long as you are prepared to research the area you wish to buy has good rental demand and negotiate hard when purchasing, for some buy to let could form part of their investment portfolio. Although as always it is worth taking independent financial advice to make sure that buy to let is right for you.
Kieron Bassett
19th January 2015
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