David Whittaker, managing director of Mortgages for Business, answers questions about the current investment market.
Who is buying to let at the moment?
The buy-to-let market is dominated by professional investors who already have large buy-to-let portfolios; amateur investors and first time buy-to-let investors currently take a minority share of the market. As capital appreciation in the property market slowed at the back end of 2004 and throughout 2005 amateurs became wary. However they are now beginning to return to the market largely due to positive capital growth predictions and indications that capital growth is already well ahead of many experts’ predictions for 2006.
What is the most common mistake investment buyers make?
Amateur buy-to-let investors tend to lose sight of the fact that buying a property to rent is an investment and not a lifestyle choice. Investing in the current ‘in vogue’ trends that you have no knowledge of, can result in disastrous financial implications.
Location is paramount to the success of a property and so a significant amount of research must be done before investment is made to ensure that the property is in line with its risk profile, meets the investor’s objectives and provides strong capital growth potential. Decisions must be made based on the market and the property and make a detached and unemotional decision – this way the investment will undoubtedly be more successful.
Professional landlords’ most common mistake is to hold onto properties that are not performing. Regular reviews need to be made to ensure that the investment remains profitable. When a property is no longer meeting the financial objective, it is best to release it and invest in a better performing property. Although, these decisions depend on the market at the present time, regularly reviewing the properties and maintaining a balanced portfolio will prevent any significant losses.
What do you see the housing market in general and the buy-to-let market in particular doing in the next year to five years?
Buy-to-let activity in 2006 is likely to continue to be dominated by the more professional investors with larger portfolios. Amateur investors and first time buy-to-let investors as in 2005 are likely to represent the minority of 2006 purchasers.
Buy-to-let lenders are launching more finely priced mortgage products and relaxed credit policies, in a bid to fuel remortgaging demand and attract new business. There are also signs of loan to property values on lending increasing to 90 per cent loan to value, away from the traditional 85 per cent loan to value.
2006 is likely see increasing red tape entering the market with the HMO licensing act being introduced, Local Housing Authority pathfinder areas increased and the tenancy deposit legalisation being introduced in October. Caution is expected to remain in 2006 towards the new build sector, which faced increasing pressure in the last quarter of 2005.
Buy-to-let property remains a solid investment, but investors should stick to market fundamentals, by thoroughly carrying out their research, allowing them to identify property that has solid capital growth potential coupled with strong rental demand.
The number of first time buyers in the housing market appears to be continuing to stay low, so demand for rented accommodation remains high as they continue to be priced out of the market. After significant growth the buy-to-let market is now steadying, but interest still remains high and has been attracting more and more attention from investors
What property types and locations tend to work best as investments?
All property types and locations can work well if the landlord correctly assesses their investment opportunity. Again it comes back to landlords doing their homework.
Good property capital appreciation can be related to a number of factors such as the regeneration of an area or affordability issues in major urban areas causing migration to surrounding areas.
More seasoned professional investors may also choose properties that require light to heavy refurbishment work in order to allow for greater capital uplift. Larger portfolio landlords in our experience are also more likely to be comfortable with taking on DSS tenants and ex-local housing authority properties.
Mortgages for Business is a leading specialist buy-to-let mortgage brokerage. Visit mortgagesforbusiness.co.uk or call 0845 345 6788