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Buy To Let Investors Confident in UK Market

December 19, 2012 | Landlord News  

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The two top priorities of buy-to-let investors looking to make a new investment in the coming year have been found to be a stable income and to boost an insufficient pension provision. According to the annual Assetz Buy To Let Investor Survey, confidence in the UK market is robust, as 75% of of investors stated that they intent to purchase additional investment properties over the coming 12 months, with low bank savings rates and poor returns on the stock market otherwise limiting income.

Many investors were found to be taking the long term view, with 65% saying that rental income for retirement is their biggest motivation, making this the top priority among investors, followed by long term capital growth (27%). Only 8% said that short term capital growth was their reason for investing.

This is in line with the BDRC Continental survey from last month, which suggested that as many as 80% of landlords view their property as an income to supplement their pension. A third were found to believe that buy-to-let investment opportunities will offer them a better return on their money.

Stuart Law, chief executive of Assetz, said, “Investors are very sensibly thinking long term, with their main goal being to supplement their retirement incomes, as annuity rates remain at rock bottom and pension income projections are cut. Those with a lump sum from savings, redundancy or inheritance are looking at what it will pay out in an annuity and seeking alternative options. Many people feel they are familiar with the property market and have faith in its long term growth and stability.”

Many are overcoming the usual hurdle of securing finances, faced by most home buyers, with a large proportion of them either buying outright with cash, or with a very small mortgage. 55% of them, in fact, stated that they will be using a low loan to value mortgage or buying outright. 23% plan to either refinance their home or an existing buy-to-let property, while 22% will use a high LTV loan.

Over two-thirds (68%) of those surveyed said they are currently achieving gross rental yields over 6%, with close to one in five achieving yields of 9% or higher. This too is in line with BDRC Continental’s findings, who found that rental yields had been averaging over 6% throughout 2012.

Law added, “Finance is still relatively hard to come by and lenders would rather allocate the limited funds they do have to the lower risk option of buy to let borrowers with large deposits and good repayment histories. The fact that interest rates have remained extremely low has protected landlords by giving them cashflow, and future rate rises, which are likely to be small and gradual, are likely to be covered largely by rental increases.”

Of those surveyed, only 5% felt that now is not a good time to invest in residential property. They stated that they feel this way because they believe house prices have still further to fall, while some had been finding it difficult to secure mortgage finance, and others had concerns over the financial security of tenants.

The Royal Institute of Chartered Surveyors (RICS) has just forecast that UK house prices will increase by 2% over 2013, while rents will rise at double this rate. They attribute this recovery in the housing market to factors such as a multi-billion pound Government scheme to boost lending.

They have also predicted an increased number of transactions, with a likely 3% year-on-year increase in sales, totalling a predicted 960,000 transactions next year, which would be the highest number since 2007, and 30,000 higher than they estimate for this year.

They arrived at their figures using data from the Council of Mortgage Lenders, who themselves have estimated 825,000 housing transactions for this year, 105,000 less than RICS.

The Land Registry’s figures show that there were 653,487 sales in England and Wales in 2011. If RICS figures are correct, there will have been a 42% increase in transactions this year, including a massive boom in the final four months, given that Land Registry Data shows that between January and August there were just 423,735 housing transactions.

RICS have also predicted that the number of repossessions should fall below 35,000 for the first time since 2007.

Simon Rubinsohn, RICS chief economist, said, “The average house price in the UK looks set to rise by a further 2% next year, despite the uncertain outlook for the economy.

“More positively, the amount of sales going through should also see an increase across the country, climbing to its best level since 2007, as the Funding for Lending scheme helps boost the availability of mortgage finance.

“But these tentative signs of recovery in the sales market should not blind us to the very real problems that still exist. Even with the Funding for Lending scheme and some other government policies beginning to be felt in the mortgage market, many first-time buyers will continue to find it difficult to secure a sufficiently large loan to take an initial step on to the housing market.

“Meanwhile, the alternative of renting is becoming more and more costly, with a further increase in rents likely in 2013. Critically, the Government needs to ensure that the conditions are in place that will enable the stock of new housing, whether for purchase or rent, to rise more rapidly.”

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