UK Buy to Let Market
The UK buy to let market has undoubtedly been impacted by the scope of fiscal and regulatory measures imposed since 2016, however, the market has endured and continues to be one of the most attractive investment options. With historically low interest rates, conversely, monetary stimulus continues to raise investor’s propensity to purchase assets such as housing.
Whilst it is important for the discerning investor to manage their portfolio and investment strategy to account for the impact of policy changes, the rise of the UK buy to let market hasn’t occurred by chance, nor overnight. It has been the result of a set of circumstances unique to the UK.
Andy Golding, the chief executive of One Savings Bank, said: ‘Private renting isn’t a flash in the pan, and 80% of new households since 2001 have been accounted for in rental properties. While for many it is a lifestyle choice, the ongoing squeeze on wages, rising house prices, not to mention difficulty in obtaining sufficient mortgage finance is accentuating this shift in tenure from owner occupation to long term renting. In many ways, Britain is becoming a more normal nation, much more like its continental neighbours as a result.’
The English Housing Survey 2015/16, commissioned by the Department for Communities and Local Government, has taken place.
There are an estimated 22.8 million households in England. Of these, 14.3 million are owner occupied. This remains at just 63% the market, the last time that owner occupation levels were this low was in 1985, when they sat at 62%.
The private rented sector has had the biggest increase. With 4.5 million households renting privately, an 8% increase from 2.4 million in 2005/2006.
The proportion of 25 to 34 year olds renting privately has nearly doubled, from 24% in 2005/2006 to 46% in 2015/2016. This means the average age in the private rental sector is low at 40, compared with 52 for social renters and 57 for owner occupiers.
The demographic shift has led to the rise of a new generation of renters. Modern tenants have developed their tastes and preferences, forcing buy to let landlords to up their game when it comes the properties they are offering. Young professional renters have clear aims in sight when it comes to the homes they live in. Properties must:
– Be centrally located
– Have excellent transport links
– Offer a superior living environment
– Provide access to essential local amenities
– Provide added value (like a gym, off-street parking or a concierge service)
Generation rent is shaping the future of the UK buy to let market. The growth of buy to let has widened choice for tenants in the private rented sector and delivered higher standards of accommodation, and those landlords who step up to meet them are in line for growing rents and strong yields.
Stuart Johnson, managing director at Prime Centrum, explained that the process for aligning investors with the best investment locations. ‘When looking for the best city locations for our property investor clients we always assess economic fundamentals. This will be from macro level such as Government investment, regeneration programmes, local house building master plans, major new industry and employment growth. But the bottom line is always, is this driving a significant and sustained demand for accommodation from key population demographics such as young professionals or commuters,’ he said.
When choosing your own buy to let property, there are just a few simple details you need to keep in mind in order to find the optimum location for your investment.
Opt For a Thriving City
The UK has a number of standout cities when it comes to economic credentials. London obviously dominates the south, but the centre and north of the country are home to a number of excellent urban locations for the keen buy-to-let investor. Cities like Liverpool, Leeds and Manchester are racing ahead when it comes to attracting a young, talented workforce and it is just that group of young professionals who are looking for premium rental properties. Priced out of the housing market, they are turning the situation to their advantage by demanding the best that the rental market has to offer.
Know Your Numbers
When choosing your buy to let investment location, take a look at the latest available data and understand the value of knowing your numbers. Figures have shown that the North West was the most lucrative UK region for rental yields between 2010 and 2015, with cities like Manchester and Liverpool at the head of the rankings. However, it was the south that dominated when it came to capital growth. Work out what’s most important to you, yields, capital growth or both, and use that knowledge to inform your choice of investment location.
So, you know your city and you know roughly where your target tenants like to rent. But that’s still not enough. Where are the local facilities like supermarkets, restaurants, decent pubs and play parks? City centres are hotbeds of activity and a difference of just a few hundred meters can have a significant impact when it comes to the returns you could make. Add something about access to employment.
Understand your Audience
You might have whittled it down to the city you want to invest in, but you still need to do some homework. Who are you target tenants? Are you looking for wealthy students, young entrepreneurs or a professional family? Where do each of these groups usually rent in the city and what are they happy to pay? The answers to these questions will make a big difference to the amount you can potentially earn from your buy to let investment.
Consult the Professionals
Most investors will run out of time and interest roughly halfway through stage two of the above points and that’s ok. There’s a reason that professional, specialist buy-to-let investment companies exist – it’s so that they can take care of the vast amount of data required to locate the perfect buy-to-let property, undertake thorough due diligence and then present you with the very best options of their research.
Buy to Let property remains a resilient sector, consistently delivering high yields and routinely outperforming other asset classes that exhibit high volatility as a result of external political and economic adjustments. This does not mean that it is quick to navigate and align your strategy with the range of opportunities out there, but with the support of professional, specialist buy to let investment companies you can apply the facts to ensure you achieve your ultimate goals and enjoy the best returns.
– Where can you achieve 7% net yields with purchases under £120,000
– Invest into cities with the fastest projected growth of over 23% in the next five years – JLL
– Achieve instant equity from buying at 15% below market comparables
– Phase 1 investors capital growth of 20% first year
– Return on investment over four years 68.26%
– Annualised net ROI 17.07%