March 5, 2009
Buy To Let - Back In Vogue (Told you so!!)
It used to work out that for every action in the residential sales market, there was typically a reaction in the lettings market that was fairly equal and pretty much opposite.
We saw this phenomenon at play in the early days of the credit crunch, when a sudden and disastrous lack of activity had not just individual estate agents fearing for their jobs, but well-established agency names looking to their letting departments – traditionally the sales department’s ugly best friend – to keep petrol in the Minis, lattes on the table and the wolf from the door. As buying and selling contracted, letting expanded.
Now – with the property market in a place it’s never been before – letting has become something of a conundrum, a physics puzzle featuring contradictory forces and opposing viewpoints. And the latest FindAProperty lettings report shows just how dramatic some of these forces have become.
During the last six months (the data runs September to February), the number of rental properties advertised on the portal has very nearly doubled, with an 8% rise in the last month alone. Enquiries on the website have picked up, too… visitors to the site’s rental list rising by 22%… a significant move, but not significant enough to match rising supply.
So, with the market flooded, does that mean the squeeze is on rents? Anecdotally, there are plenty of stories about prospective tenants enjoying a new choice of properties, boosted by a crop of ‘accidental’ landlords who can’t or won’t sell during the downturn, negotiating rents south. At the top end of the market, Hamptons showed rents falling faster than sale prices in many parts of London. The FindaProperty national data shows rents down 4.8% over 12 months and down 1.2% in February alone.
But don’t assume rents can continue to waltz alongside sale prices indefinitely. Only recently, members of the Intermediate Mortgage Lenders Association were wondering what was happening to all the prospective first-time buyers they couldn’t help; so they commissioned a study. The results showed that – in the final three months of 2008 – 58% of those who had applied for a mortgage were turned down. Of that group, 80% then gave up and opted to rent for the immediate future. The IMLA’s director pointed out that the private rented sector will be picking up the slack… certainly helping support rents at the lower end of the rental market.
The buy-to-let sector faces its own conundrum. Prospective landlords have been decimated by the lending freeze, too often caught with their pants down when a tenant suffers a sudden loss of income (there’s insurance available to deal with this) and unexpectedly found themselves competing with reluctant landlords who’d really prefer to sell. And yet, the imploding residential market has meant that yields – for the cash-rich professional investor who knows how to find and bag and bargain, and who can afford to stay with this for the long term – are something to be excited about at the moment.
Buy-to-let’s not dead… it’s just in a funny shape.
