The government may be trying to give Brits a leg up onto the property ladder, but by inadvertently increasing house prices buy-to-letters are jumping at the chance to benefit from the booming rental market.
The government’s Help to Buy scheme, the first part of which was launched last April, has given thousands of people the chance of home-ownership but it has also pushed up house prices meaning the gulf between those who can afford to buy and those who cannot has grown ever wider.
Figures from charity Shelter show that average earnings would be £55,296 if they had kept pace with housing inflation since 1997. The average price of a home has increased more than three-fold in this time from £75,762 to £253,816 but average wages have increased from £16,500 to just £25,932.
So it is no surprise that 10 million people now rent from private landlords, according to Knight Frank, which says this figure has doubled since 2000. And according to separate research by Countrywide, renters are becoming older, with 60% of tenants over the age of 30, while more families are renting.
For landlords, the benefits are doubled; not only are house prices increasing but rents are still rising, albeit more slowly than in 2012.
LSL Property Services’ buy-to-let index showed the average yearly rent in England and Wales is now £745 a month as rents rose 1.5% in 2013, a smaller increase than the 3.2% rise seen the year before.
Trends for increasing rents and house prices are set to continue and David Hollingworth of mortgage broker London & Country said the interest in buy-to-let will not wane.
‘The buy-to-let market has remained very strong in recent years and as confidence in the general housing market picks up and prices begin to rise it seems hard to see why that will change,’ he said.
‘The focus for buy-to-let investors has perhaps been on the rental income in recent years as they attempt to generate a better return on cash compared with the poor savings rates that prevail. Rental income has held up well and although first-time buyer numbers are up the demand for rented accommodation should remain strong.’
Buying at the top
Hollingworth said rising house prices would ‘add to the attraction’ of buy-to-let but he warned that ‘landlords should be taking a long term view’.
‘Capital growth in the longer run is something that most investors will understandably hope for,’ he said.
Research by buy-to-let lender BM Solutions showed a third of landlords plan to expand their portfolios in the next 12 months as 63% of landlords surveyed said they were confident about rental prospects for the year.
This optimism, alongside the government’s Help to Buy initiative, is ensuring house prices are ticking up steadily. According to figures from the Office of National Statistics house prices are now 1.6% higher than the pre-financial crisis peak and the average UK property is now worth £250,000 – meaning that more home buyers will be dragged into the 3% stamp duty bracket, or in some cases frozen out of home ownership because of the expense.
Howard Archer, chief UK economist at IHS Global Insight, predicted house prices will rise another 8% this year and warned ‘a housing bubble could really develop in 2014’.
Seeing the potential in the buy-to-let market, the Post Office has moved back into the buy-to-let mortgage market and new deals are coming thick and fast.
‘The mortgage market is extremely competitive which is good news for landlords, whether they are looking to expand their portfolio or to cut costs on existing properties,’ said Hollingworth.
Leeds building society is offering a two-year fixed rate at 2.59% to 60% loan-to-value (LTV) investors with a fee of £999 and a 2.89% rate with a fee of £199.
Hollingworth said the Post Office was ‘clearly pricing to attract business’ offering a five-year fixed rate at 3.89% on 60% LTV mortgages with a fee of £1,495.
And for those would-be buy-to-letters with a smaller deposit, Mortgage Trust has added mortgages which require a deposit of just 20%.
John Wilcock, head of mortgages at Post Office, said: There has been a significant increase in the demand for buy-to-let mortgages in the last 12 months as more borrowers begin to consider the rental market.’