Letting property

Buy to let

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Buying property has been an activity endured by millions of people for a long, long time. Buying property solely for the purpose of an investment is also not a new phenomenon, as wealthy landlords have been acquiring houses to rent out for hundreds of years. However, the buy-to-let phenomenon as we now know it is a relatively new activity that has opened up the role of landlord to a whole new cross section of society.

The birth of buy to let
The official birth of buy to let took place in 1996. Buy to let is the name given to an initiative originally conceived by the Association of Residential Lettings Agents (ARLA) that was initially supported by a small panel of eight mortgage lenders. These were the first mainstream financial institutions that were willing to throw open their lending to investors wishing to buy property to let in the private rental market. Since then, the number of lenders who service this section of the market has grown to more than 50, as buy to let has become increasingly popular.

Why the upsurge in demand?
The fact that there are a lot more lenders willing to advance people money in order to buy investment property is just one of the reasons why there has been a large growth in the market sector over the last five or ten years.

The investment environment for buy to let landlords has improved dramatically over the past decade:

  • Firstly, the 1988 Housing Act was a very favourable piece of legislation, that gave landlords much greater power to evict problem tenants. Previously, tenant occupation was extremely detrimental to the value of a property, making residential investment something of a mug's game.
  • Secondly, as the 90's wore on, we have had more and more lenders entering this sector of the market, meaning that once-specialist mortgages have become more mainstream and therefore more competitive.
  • Finally, the last few years have seen steady, sustained growth in the broader economy, with low inflation. This makes for a pretty good climate for owning property.

At the same time, various socio-economic factors have been pushing up the demand for rental property. Whilst the economic environment and rising property prices have been great news for homeowners, it has made it more difficult for first time buyers to reach that first rung on the ownership ladder. The increasing division of the family unit has led to more people leaving home at an early age - a time when they are not financially able to own their own home. And the job market has changed too; there is far less security now, with much shorter employment contracts and a greater need for mobility, all pointing towards a greater need for rented accommodation.

REnted property in the future
Some estimates put the number of specific buy to let properties as low as 30 or 40 thousand. However this probably lags some way behind the true figure. This number excludes buy to let investors who take their mortgage out with lenders outside the ARLA panel. Nor does it account for the many thousands of UK-based and foreign investors buying property each year that do not need to go down the avenue of a British buy to let mortgage, nor a great many corporate buyers who are very active in the residential property investment market.

Although the number of specific buy to let properties is unclear, what is certain is that demand for rented property in general has risen by 50% over the course of the last decade and is likely to continue growing in this new century. Privately rented property now represents around 11% of the housing stock, with the likelihood that it will comprise around 15% ten years from now.

Although demand will always fluctuate over any period of time, be it a week, month, year or decade, there will always be a need for good quality residential property offered at sensible rental levels. So if you do your homework and look after your investment, then being a landlord can turn out to be a profitable venture.

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