Newsletter June 2007

Buy-to-let market: The number of UK property tycoons set to double by 2010

Latest research from MINTEL finds that today as many 2 million UK homeowners (7%) own a second home in the UK or abroad.
At present one million of these real estate moguls (3% of homeowners) are buy-to-let landlords, owning property in the UK that they let out. Looking to the future, MINTEL's research shows that within the next 3 years, a further one million homeowners (3%) want to have another property in the UK that they can let out, so doubling the total UK buy-to-let market by 2010.

"It is clear that these days, buy-to-let is no longer the exclusive domain of professional portfolio landlords. Increasingly, property owners are seeing the benefits of investing in bricks and mortar and often regard the second homes market as a good alternative means of saving for retirement. As long as these trends continue, future growth in this market should be guaranteed," comments Paul Davies, senior financial analyst at MINTEL.

Building the buy-to-let market

In 2007, the number of new buy-to-let mortgages is expected to reach 361,000, up almost 10% on last year's figures. Similarly, over the past year, gross advances on buy-to-let mortgages - the total amount borrowed - will have also increased by around the same amount (9%), to reach just under £42 billion this year. By 2011, MINTEL predicts new sales of buy-to-let mortgages will be more than 550,000 a year, up 53% on 2007 figures, while gross advances will grow at an even faster rate (65%) over the same four year period, reaching nearly £69 billion.
"The buy-to-let mortgage market has experienced meteoric growth since the late 1990s, outperforming the wider mortgage market over the past few years. MINTEL expects the market to continue to grow at a healthy rate over the coming years, driven by the expected expansion in the population and the continuing strong demand for rented accommodation," explains Paul Davies.

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Renewed call for the building of ‘family homes’ - SmartNewHomes.com

Detached homes currently make up just 26% of the new homes market, down 17% over the last three years, while apartments make up a massive 54% of the new homes mix, up 13% over the same period.

David Bexon, Managing Director, SmartNewHomes.com said: “The lack of suitable family homes is a serious issue and one that we have seen highlighted yet again this week, by both the House Builders Association and the Home Builders Federation - it cannot be ignored.

“Many young families are currently trapped in their existing properties, unable to afford to take the next step on the housing ladder with steep prices and the threat of another rise in interest rates holding them back. While a small number of families may be content with an apartment, with some now looking for larger three or four bedroom apartments to meet their families’ needs, this group is in the minority. With often little or no outdoor space and no opportunity to expand, the needs of the majority of young families are just not being met.

“Government has to address this issue and adjust their current planning policies accordingly. The focus must not only be on the number of new homes but on the types of new homes being built. Developers have a good understanding of local demand for housing and Government must start to work more closely with them to ensure the specific housing needs in different areas across the UK are met accordingly.”

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Agents report a buoyant UK residential lettings market.

Demand for rental property continues, according to lettings members of the National Association of Estate Agents (NAEA). The increase in Eastern European immigration, buoyant employment conditions and the demand from those who cannot afford to buy has contributed to a thriving rental market throughout most of the UK in the first quarter of 2007.

This has meant that landlords in many areas are able to achieve their desired rental yields despite the increase in the number of buy-to-let investors and property available to rent.

Young professionals pay a premium on rental properties.

With affordability being a key issue for those looking to get on the property ladder, many young professionals are being forced to stay in rental properties for longer and are becoming increasingly willing to pay higher premiums in order to enjoy a better standard of living.

Jan Bartlett, lettings expert at the National Association of Estate Agents and principal at Premier Lettings, Oxford, comments: “A high percentage of buy-to-let investors purchase new-build properties, which attract higher than average rental yields due to their quality and desirability. Young professionals are prepared to pay a premium to rent new build property which they otherwise might not be able to afford. Technically, they get more for their money than if they paid a mortgage on the same property, as they don’t have to pay for maintenance or upkeep.”

Rents rise as interest rate rises take effect.

Rents raised significantly in the first quarter of 2007, up an average of 1.77% compared to an increase of just 0.2% in the same period in 2006. The interest rate rises in November 2006 and January 2007 are likely to have had an impact on buy-to-let landlords who will have increased their rents to cover their additional outgoings.

Jan Bartlett comments: “The increase in rents is a reflection of interest rate rises, but it has not affected the market. Properties are being let at their full asking price, unlike 18 months ago when we often had to negotiate rents down. Economic and immigration factors continue to fuel demand, and we have also seen an increase in the number of young professionals relocating for employment, which fuels the rental market as people often rent before they buy when relocating.”

Time taken to let

The time taken to let a property was slightly less than the same time last year. The average number of days between tenancies in the first quarter of 2007 was 13, compared to 14 last year. This reflects the healthy rental market; people are taking less time to commit to a property as there is a high demand.

Click through to our Buy to Let mortgage pages.

London office market goes from strength to strength

GVA Grimley’s first Central London Office Commentary of the year highlights that take-up for office space continues to rise, with 2.3 million sq ft already let in the first quarter, which is 6% higher than the five year quarterly average.

Similarly, the total amount of vacant office space in central London has fallen to its lowest level for over 6 years, with only 5.2% (10.1 million sq ft) of total stock currently available for occupancy. There is now less than half the office space available in central London than there was two years ago.

Prime central London rental growth finished the quarter at 13.6% pa, down from 18.7% pa from the end of 2006. Prime yields remain unchanged at 3.75% in the West End and 4.35% in the City.

Tony Joyce, Head of City Office Agency, said: "The London office market is showing no sign of slowing down this year, with the availability of office space continuing to shrink as take-up from occupiers increases.

"In the City, we believe that there is demand from named occupiers looking for new or additional space totalling 11.5 million sq ft (in addition to the unnamed demand). Balance this against the estimated 13 million sq ft of speculative space in the current cycle, then at worst we have an equilibrium of supply and demand, but can expect to see at least another two to three years of sustained growth."

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