Buy to let – have you missed the boat?
The buy to let market was once just for the professional landlords and very few other people. With house prices crashing during the recession, along with interest rates at a record low and smaller pension returns, many people have been looking into investing into this area as part of retirement planning.
The increase in people buying properties for retirement planning, coupled with the recovery in the housing marking (including the effect that Help to Buy has had on the market), has meant that house prices have steadily been increasing and putting house prices out of reach of first time buyers. This means that there are more people who have to rent for longer to save bigger deposits, which is good news for landlords.
Lenders are also beginning to return to the buy to let market, after severely restricting the amount that it would lend during the recession. The buy to let market accounted for 14% of all mortgage borrowing in 2013, compared to 11.5% in 2012 and 9.5% in 2011 (according to the Council of Mortgage Lenders). A further £2.2bn of loans were approved in May 2014 and the number is increasing each month. One reason for this is that the Mortgage Market Review in April 2014 does not impose the same strict criteria in buy to let mortgages as residential mortgages.
The government is concerned that the buy to let market is restricting the supply of properties for first time buyers. They are also worried that this will also be exacerbated next year when the requirement for a pension annuity will be abolished, leaving people to invest more cash into buy to let properties which offer a greater return.
The government has asked the Governor of the Bank of England to look into this and keep and eye on it, which has also indirectly forced the banks to bring in multiple income limits in buyer to let mortgages.
Even with the lack of supply and rising prices, investing in property is always a risky business. As was seen in the recession, house prices can still drop dramatically and should always be seen as a medium to long term investment and not for just making a quick buck.
With house prices rising, mortgages being slowly restricted, a boom predicted next year for following pension changes and a lack of supply of houses (only 80,000 being built each year), which is all being closely watched by the Bank of England, now seem to be the time to invest if you are going to take the plunge.
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