12th February 2007
Investors Chronicle – No Let-up. Can the buy-to-let boom continue?
Every year, the doomsters predict that the buy-to-let market will collapse. Interest rates rose 0.25 per cent in January and, with inflation at 3 per cent, another 0.25 per cent rise is expected - taking the rate to 5.25 per cent. Will this not only bring down the buy-to-let market, but house process generally?
The thing about these predictions is that they're based on a time frame that's out of phase with the demand for buy-to-let properties. Investors are looking for a range of attributes, including a regular and predictable income, a secure investment and capital gains. Most importantly, the majority are looking for the long term. They can no longer rely on their pensions, so they are looking for another income to see them through old age.
However, while all these points are correct, there are two fundamentals of economics that are more important: supply and demand. Changing demographics and social trends in the UK have increased the population and raised the number of single people seeking rented accommodation. And wall-to-wall television programmes on home improvements have driven a taste for new designer accommodation. But supply is simply not keeping up with this growing demand.
Let's look at demand more closely. It is not only UK residents who want buy-to-let apartments in this country. Middle Eastern investors are also interested for the same reasons: a reliable, safe, long-term income and a capital gain, which, while not guaranteed, looks reasonably certain over several years.
In the UK, more than one-third of buy-to-let investors have been in this market for a year or less. Moreover, six out of 10 buy-to-let owners said they planned to increase their portfolios this year, according to a recent Aria review.
Although yields have fallen and interest rates have risen, investors, worldwide, are attracted to the safety and reliability of UK property.
But no market is without hiccups. The UK property market has had its dips over the past 30 years, but they have not lasted long. Meanwhile, the buy-to-let market is still new and developing. Changes there will be, but buy-to-let is here to stay.
Grant Bovey is chief executive of Imagine Homes.