The latest Home Let Rental Index published in March 2014 by the Barbon Insurance Group paints a very appealing picture of the UK Buy to Let (BTL) investment market with projections of significant growth in the sector in 2014.
Martin Totty, Barbon's CEO states in the report that "We're seeing an increase in the number of people who are opting to rent as their preferred choice of living. The private rented sector offers many advantages to tenants – whether they're students, professionals or families looking for a long-term home."
A distinct north-south divide emerges in the report with the most tenants living in the south where the rents are the highest in the country. In the north however, rents are rising at a faster rate although tenants pay proportionately less of their income on rent than tenants in the south.
In the English Housing Survey last published by the Government in February 2014, a decline in numbers of homeowners is reported. One of the most surprising facts is that the number of tenants renting from private landlords - which stands at 4 million - has exceeded those renting from housing associations and local councils for the first time ever.
It would appear that despite the introduction of the Government's 'Help to Buy' Scheme, people are still finding themselves unable to get on the property ladder in the UK which is consequently driving growth in the private rental sector. The survey reports that four out of ten renters in the private rented sector do not expect to ever buy a house. Of those who do, a whopping 44% expect to be waiting for more than five years to be able to afford it.
Whilst this may not be the best news for the average Brit seeking to invest in bricks and mortar as a home for their family, it would appear that those able to invest in the BTL market as part of their portfolio may be entering the next boom market. With the supply-demand dynamic in the investor's favour, the risks of BTL investment are significantly reduced. Furthermore, BTL is an extremely tax efficient investment vehicle. In fact, it's quite difficult to determine what the downside could be for those fortunate enough to have capital to invest.
Interestingly, since the budget of March this year, pensioners are now able to cash in their pension in one lump sum upon retirement rather than being required to purchase an annuity. It is anticipated that this will bring a substantial amount of investment into the BTL market with pensioners wishing to benefit from an income stream from rentals together with intrinsic capital growth.
Throughout the UK, the private rental market is showing growth albeit at varying levels. It's mostly a case of swings and roundabouts however in that whilst rents are high in the south, so are property prices and earning potential in contrast to the north of England where rents are rising at a greater rate to property prices but still falling within affordable ranges for local tenants.
In many senses, BTL is much less dependent upon 'location, location, location' than home ownership where personal circumstances can often dictate where someone needs to buy a property. Whether looking in the north or the south, BTL offers significant growth potential for investor returns.
- Tuesday 22 April 2014