Buy to Let: A Viable Investment?

The Buy to Let sector in the UK has suffered during the economic downturn, with lending restrictions, repossessions and unemployment all taking their toll on the market...

The Buy to Let sector in the UK has suffered during the economic downturn, with lending restrictions, repossessions and unemployment all taking their toll on the market. Many who bought property to rent out during the years when finance was readily available found themselves unable to keep up with repayments when the country's economy worsened and as a result, many casual investors exited the Buy to Let arena.

Co-founder of the Hampshire and Home Counties Property Networking Club Hazel Reed stated earlier this month that finance had been too easy to access and welcomed the more stringent lending conditions now being placed on Buy to Let mortgages. However, she was upbeat about the prospects for the sector in the long term, pointing out that with first-time buyers also struggling to afford home purchases, the rental market is set to expand.

Independent property expert Malcolm Harrison made a similar assertion, adding that for established investors there are means to fund Buy to Let purchases, but the need for a significant deposit is a stumbling block for many who may want to enter the sector for the first time. Another potential hurdle facing those looking for property investment opportunities in the UK is house prices. Although values have fallen slightly, there have not been the significant drops experienced elsewhere around the world - which may mean savvy investors are looking overseas for Buy to Let opportunities.

The US is a prime candidate in this regard - unlike in Britain, property values have plummeted and there are some bargains to be found for investors willing to do a little leg work. Figures released by the National Association of Realtors (NAR) in May this year revealed that the value of residential sales to international buyers rose by 16 billion USD (9.9 billion GBP) in the 12 months ended March 2011, compared to the 2009-10 tax year.

NAR president Ron Phillips commented: "The US has always been a desirable place to own property and a profitable investment. In recent years we have seen more and more foreign buyers coming here to take advantage of low prices and plentiful inventory." In terms of where people are making purchases, Florida tops the list, followed by California, Texas and Arizona.

Paul Collins, editor at BuyAssociation, recently claimed that popular holiday destinations, such as Florida, will continue to do well with overseas investors. He stressed that there is "still strong interest in the US market", adding that it "could still be very profitable", particularly in regions with a thriving and well-developed tourism industry.

Meanwhile, the Knight Frank Global House Price Index, which was published on June 17th, showed that the US had registered one of the largest declines in residential property values of the 50 countries surveyed, which could add to its appeal. Annual prices fell by 4.9 per cent year-on-year and NAR reported that 62 per cent of foreign investors were cash buyers in the 2010-11 financial year, citing issues with obtaining mortgages as one of the biggest barriers to overseas buyers.

And if analysts are to be believed, the US property sector looks set to be a target for investors for some time to come. A panel of experts at the Reuters Global Real Estate Summit 2011 - held between June 20th and 23rd - selected the nation as a top location for buyers, noting that prices have yet to recover in many major cities.

Scott Latham, vice-chairman of Jones Lang LaSalle, told the conference that in America "yields are still quite affordable and property values, which have recovered [...] represent good value". Treasury China Trust chief executive Richard David agreed with Mr Latham's assertion, adding: "You look at some of the prices of real estate in the United States and you would like to think there is significant gains to be made as they come off their lows."

- Thursday 30 June 2011

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