10 years ago, buy to let was booming. People who could afford the fees, deposit and any renovation work required could be pretty certain they would turn their knowledge of property into profit. And even if there wasn’t an immediate return on investment, they could expect rent payments to chip away at their buy to let mortgage (first introduced to the market officially in 1996) while the equity climbed steadily. In fact, it’s estimated that people who bought for investment in the 90s made an average of £12,000 for every £1,000 spent.
Then things changed. The economic downturn from about 2008 onwards saw loans from the banks dry up – or at the very least they were asking for a significant 25 percent minimum deposit. A fall in prices due to fewer people getting mortgages only added to the problems of landlords, with many homeowners falling into negative equity when their income couldn’t cover the repayments. Soon after was the introduction of the Energy Performance Certificates, but we won’t rub salt in the wounds. It was a pretty stressful time if you owned a property and rented it out. While those who lived in the homes they owned could sit tight and wait for the storm to pass it was a different story for landlords.
Today, however, we’re seeing a return to the hay days of buying to let. The value of property owned by Britain’s growing army of buy-to-let investors is fast approaching the value of the entire workforce’s pension savings built up over decades of employment. In addition, the number of people renting their home is predicted to be 40 percent in a decade and it’s largely down to a shift in the way many Brits are choosing to live. Renting is slowly becoming an acceptable choice for people well into their 30s and 40s, something our nation has not considered to be the norm until now.
The trend has been driven by a few factors. Most commonly has been the unmistakable rise in the cost of purchasing a property. Stamp duty, solicitor’s fees and deposits have all meant that renting is the most economical option. Then there are the latest guidelines introduced for lenders, which means more stringent checks on applicants to determine whether they can afford repayments. This is undoubtedly going to impact the amount of people who can get a mortgage easily – because that’s exactly what it’s designed to do!
In addition to the finances, we’re less inclined to stay in one place for too long now. With the world getting smaller and more people moving jobs more frequently, renting is a more sensible option until people are sure where they want to live for the next few years.
So with fewer people getting on the property ladder, it stands to reason that there will be opportunities in the coming years for buy-to-let property investors. It’s not without its risks though. There has been talk of three percent interest rates by 2017. So any landlords with a tracker mortgage could see a repeat of problems faced at the start of the recession and get stung by mortgage costs that aren’t covered by their incoming rent payments. The advice there would be keep a close eye on likely changes in the economy and, as is often the case, don’t tie yourself in for too long a period.
Generally speaking though, with the rise in popularity (or necessity) of renting rather than buying and as we emerge from the recession, it’s a good time to be a landlord.
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