Buy to Let

The present boom in the Buy to Let market is said to be intensifying the housing apartheid in the UK with soaring rents and less and less people being able to afford to buy property. 

With the dearth of residential mortgages is such that it is predicted that one in five households (well over four million families) will be forced into private rented accommodation (buy to let) by 2016. In the last year alone the increase in families in private rented accommodation has increased by 300,000. In contrast to this, there are an increasingly attractive range of Buy to Let mortgages coming on the market, making it easier in some cases to obtain a Buy to Let mortgage rather than a residential mortgage for your own home.

House builders are becoming concerned at what they see as an unhappy equilibrium between frustrated buyers unable to or struggling to get the 20% deposits currently required by mortgage lenders and the lack of distressed sellers with current interest rates at a record low. The demand to buy is there but the funding isnt. With new housebuilding at a 90 year low coupled with a severe shortage of social housing, private rental and buy to let are the only option available.

As the rising number of single-person households and higher immigration and shortage of housing  increases the demand rents are increasing substantially with the average rent for a three bedroomed house in London rising from £872 per month two years ago to £972 per month with a predicted rise of 8% this year. Rental yields in London are now running at 6%.

Buy to let mortgages now account for a record share of all outstanding mortgages in the UK, amounting to £152 billion and accounting for all of the growth in mortgage products this year. In the current market, banks and other mortgage lenders view Buy to let mortgages to cash- rich landlords, typically with an average loan to value rate of 60% to 75% as being exposing them to the least risk; whereas loans to first time buyers requiring larger mortgages and with no track record of repaying such debt, remains the highest risk.

The potential first time buyers are thus consigned to expensive, often substandard, buy to let properties, with 41% of private rented properties failing to meet the Governments decent home standard and the biggest share of housing built before 1919.

Although the March Budget offered a glimmer of hope in the form of the Government’s FirstBuy Scheme, such schemes are available to help only a small proportion of the first time buyers – estimated to be 10,0000 out of an estimated 800,000.

On the other hand, more significant are the measures in the budget designed to encourage the bulk buying of property and boost the large property magnates property portfolios.

The Government is hoping the tax-friendly set-up for the bulk purchase of properties will encourage private rentals and address the UK's housing shortfall, but it won't do anything to significantly ease pressure on rental costs in the short term, and it will hardly bring the prospect of home ownership closer for those forced to save deposits for eight years on average especially as it is likely to cause the prices of property to rise.