The previous rise in popularity of buy-to-let was arguably driven by readily available finance requiring low deposits. Investors were re-financing existing homes and typically investing for quick returns from an overheating market. Now, the profile and motivations of the average property investor have changed dramatically. Today’s property investor is typically motivated by income potential, steady capital growth and considers their investment to be a long term one.
Demand for rental property is increasing for a wide range of reasons, which also now includes the lack of stock coming to the residential sales market forcing would-be buyers to now have to rent as they wait for that ideal opportunity to come to the market. Couple this with potential First Time Buyers who need to rent whilst they save for a deposit and it is clear to understand why there is such high demand.
The recently published English Housing Survey revealed that the number of Owner-Occupiers dropped in 2013/14 to its lowest level since 1985. This trend was particularly profound amongst the 25-34 year old age group where the number of those renting from private landlords has doubled over the last decade.
Increased rental demand is leading to higher rental prices and consequently higher yields for those already in the investment market. With a change in social attitudes specifically towards renting, many in the 25-34 year old age groups deliberately rent for longer durations; some to allow for lifestyle flexibility whereas others bide their time whilst they strengthen their finances prior to making a property purchase.
The combination of rising house prices, tenant demand and higher rental values has led to attractive returns for many investors. However, with careful property selection and negotiation, high returns are achievable without having to enter the sub-prime or HMO markets.
Prior to making a purchase, investors need to contemplate what is driving their decision to enter the buy-to-let market. Is the bias towards income or is it capital growth? This will determine very quickly where they should be buying and what area of the market they should be focusing on.
There is also a need to exercise caution and not rush into a decision to purchase in a particular area without carefully researching the market and understanding if it truly meets your objectives.
Making a successful investment
If, as expected there is further increased activity in the buy-to-let market due to the forthcoming relaxing of the rules regarding private pensions, this may lead to an oversupply of stock in some locations with the consequence of more competition for tenants. This in turn could have an effect on yields which could be a problem if you have purchased a property solely for that purpose.
With a rising levels of interest for investment properties, it’s absolutely essential that buyers remember to treat their purchase as a business transaction and as such, ensure they seek advice from experienced property professional advisors before embarking on a purchase.