1st February 2007
City AM – Its Boomtime in the Buy-to-let market
As house prices rise, demand for good rental property grows, so investing in bricks and mortar could be a good bet, says Grant Bovey
Britain is a nation that loves to talk about property, whether it be current house prices, where's hot and where's not or what effect interest rates will have. Each year economists eagerly await the office for National Statistics calculations on City bonuses to help predict trends in the British housing market.
ONS figures at the end of last year revealed that City bonuses are expected to rise by £2.5bn to a record £19bn. This follows a £1.5bn increase last year, a leap of 25 per cent in 2 years - all good news for the British economy.
Historically, a chunk of City bonus payouts are invested in the housing market and a large proportion has already found its way there as investors try to maximise their funds.
The City economy has a huge influence on the London property market and prime locations outside the capital. London has delivered the largest increase in house prices since the market recovered in February 1996 - a rise of 240 per cent. More specifically the E14 post-code and Docklands area has become a sought after address. Properties are being snapped up as quickly as developers can build them.
Growth Areas
This is because many City workers choose to live or invest in a property located close to work. All growth predictions for the Tower Hamlet are good as it has become a prime investment market offering strong capital growth and high rental yields.
Other major property growth areas include Manchester, Leeds and Brighton. As critics are large and diverse areas, investors look for property that will increase in value quickly. Property "hotspots" are those locations near to train or tube stations and that offer a range of amenities.
Landlords who want to invest in their future can experience great potential capital growth and good tenant demand from the right property in the right place.
The British rental market as a whole is currently going from strength to strength. Many estate agents are reporting significant improvements across the sector. There are a rising number of single homeowners, people are living longer and Britain is experiencing an increasing migrant and student population. Added to this is the huge demand from would-be first time buyers and affluent young professionals who now require properties to rent.
Out-performing equity
The increases in the Bank of England's interest rate to 5 per cent in November and to 5.25 per cent last month could suggest a resultant slowing of the housing market. However, this is generally not the case for the buy-to-let market.
Unstable or fluctuating equity markets have meant that buy-to-let continues to be an attractive option for investors. Over recent times the housing market has surpassed the performance of equity markets.
According to research by Halifax, Britain's largest lender, house prices have risen by almost 187 per cent since the market recovered in February 1996.
A recent report from the specialist buy-to-let broker Landlord Mortgages shows that returns on buy-to-let properties have increased by 157 per cent between 2000 and 2006 . Those who invested in the FTSE 100 during the same period would have only achieved 2 per cent growth.
The huge gap between the potential returns available is due to the consistently strong performance of the housing market, while the stock exchange has experienced some severe set backs.
Long-term property investment remains an appealing option for investors as house prices continue to rise regardless of short term interest rate fluctuation.
It is no surprise that bricks and mortar is still the number one investment in Britain.
Grant Bovey is chief executive of property investment company Imagine Homes
INFORMATION
For further information on Imagine Homes and its portfolio of properties, visit imaginehomes.co.uk or tel: 0800 0194 094