There is a question at the moment, like some sort of mystical force may be at play; over why the UK buy to let scene is currently thriving beyond belief. It is simple economics:
Hardly anyone is buying a home right now, for reasons to be explained below. And home builders are hardly building, primarily because no one is buying, but also because they (the builders) are still licking their metaphorical wounds from the financial strike they suffered, and remain fearful of the economic outlook that lies ahead.
More people renting and fewer new homes to rent makes for increasing rental demand, and that is before we even mention the thousands upon thousands of families who had their homes repossessed, and were henceforth thrust into the rental market for better or worse.
Britain has always been considered a nation of aspirational homeowners; where owning your own home some day was a lynchpin of being British. But this is becoming less and less true by the month, especially in the cities.
Firstly the UK economy is still far from rosy. The government’s austerity measures are now biting us all; many people still out of work, facing unemployment or on frozen salaries. In this quagmire it is easy to understand why many people are not even considering buying a house in the UK.
Of course there are still those who are planning to buy ASAP, and they face difficulties in raising finance to buy. This is especially true of first time buyers, who are the lifeblood of a healthy housing market.
During the boom first time buyers thrived on a wealth of 95-100 percent LTV mortgages that were available at the time. When the crunch hit these dropped almost instantly to zero. Now there are some 95% mortgages around, but they are difficult to get and expensive to repay.
So for most first time buyers a deposit of at least 10% is required, which is £16,300 based on the average house price in England and Wales, and £33,600 to buy in London, where £336,438 is the average house sale price.
So, many people don’t want to buy, and those that do cannot get mortgages. This is why the press has recently headlined on the fears of prominent housing experts that this could lead to a generation of renters.
This is of course bad news for those who want to buy homes, and for those that want to sell homes, including estate agents, but it certainly isn’t bad news for landlords or lettings agents. Nor is it bad news for lenders, who have recently given landlords easier access to finance, in order to capitalise on landlords’ desire to make the maximum profit in a favourable market by expanding their portfolios.
A number of existing buy-to-let lenders have increased their activity and broadened their criteria, and we have also seen several providers re-enter the lending space as they have secured funding lines.
And who can blame them; landlords are certainly a good lending bet at the moment, especially given that the most professional landlords are coming in with big deposits, because it is in their best interests to have low repayments, which eat into their cash-flow. We also hear time and again that this pool of mortgage assets performs well once on the books, provided they are well underwritten at the outset.
That said, lenders remain concerned about their exposure in this area of the market and how quickly they can become overextended. However, this is ultimately a good thing, because the last thing anyone wants is another banking crash.