The start of the new financial year has led many to predict that the Bank of England will shortly decide to increase interest rates.
Record Low
Interest rates have been at an all-time low for over five years. With the economy showing small shoots of recovery, many are forecasting rises during the coming twelve months
If the anticipated rise does occur, it will be interesting to see the impact for those in the buy-to-let and rental market.
Extending
Luke Gidney, director of award-winning letting agency Let-Leeds, said that the rental sector has benefited hugely from the low interest rates of previous years. Gidney said there was no surprise that a recent survey showed that, ‘57% of landlords expect to expand their property portfolios in 2014.’ He continued, saying, ‘with mortgage lenders having lowered their buy-to-let mortgage rates and one in six people now living in private, rented accommodation, the rental sector looks set to increase in size.
‘From our experience, buy-to-let activity has certainly been on the increase over the last six months.’[1]
Unsustainable
Despite increased activity, Gidney believes that it has not been easy to sustain in certain areas. Taking Leeds as an example, he says, ‘in this city, there is a shortage of what you might call typical buy-to-let stock. By this, I mean the small, one or two-bedroom flats and houses that can be bought for £125,000 or less. It is hard to find this type of housing – the type that is generally classed as good investment property. And in a city like Leeds that has had a marked effect on the property sector.’
‘For a start, the scarcity of the buy-to-let type of property has led to a sharp increase in the price of many small houses and flats.’
‘The old economic principle of prices being pushed up when demand outstrips supply certainly seems to be the case in the city.’
‘This has been exacerbated by the impact of low buy-to-let mortgage borrowing rates. Such rates mean that there are higher rental yields to be made on such properties.’
‘So when you combine low mortgage rates with high rental yields and a shortage in suitable housing stock, it is no great surprise that prices are going up.’[1]
Wise
Mr Gidney said that smart investors had cashed in on the fruitful buy-to-let market. He suggests that wise investors, ‘have done the calculations, have worked out the conditions are right for making a tidy sum and have hunted down the right properties.’ Gidney went on to say,’ The fact that such properties are in short supply has led to prices going up and auction rooms across the region becoming stuffed full of investors – all of whom are looking to snap up buy-to-let properties to increase the size of their portfolios.
“When you add to this both the fact that buy-to-let mortgages are currently quite easy to obtain and the incredibly buoyant state of the rental market, it is clear that the conditions are all in place for the current trend to increase.’[1]
Caution
Despite the signs of positivity continuing in the buy-to-let market, Gidney warns that it would be, ‘wrong to assume that this can continue for ever.’ He suggests that, ‘an increase in mortgage rates could see the feeding frenzy for buy-to-let properties end suddenly.’ Furthermore, Mr Gidney belives that, ‘if the prices of potential buy-to-let properties rise too high they will cease to be a worthwhile investment for the landlords who are currently doing all they can to increase the size of their rental portfolio.’[1]
[1] http://www.yorkshireeveningpost.co.uk/news/business-news/property-news/leeds-proprty-news-buy-to-let-boom-won-t-last-forever-1-6539353