The UK Buy-to-Let Market: To buy or not to buy?
With current news articles talking down the buy-to-let market in the UK and fears of a crash or further interest rate increases, Cornerstone Property decided to take a look at the fundamentals behind the UK market, and the rational for buying-to-let to see if there is a sustainable investment market or if recent negative press has a place in the news.
First lets look at the statistics around the UK housing market. Taking into consideration the sheer size of the UK, it has a population of circa 60 million people with one of the highest population densities in Europe. Year-on-year growth estimates are projected at 300,000 people per annum. Then take the housing market in the UK, which is outputting 150,000 homes per year – the lowest supply of housing since World War II. The Barker Report, commissioned by the UK Treasury, has established that the UK is in need of 300,000 new homes per year to satisfy the current and projected demand for housing. This acute shortage of supply that is unable to meet the UK’s demand is one of the fundamental reasons for property price growth to continue long-term.
After all, property is not an asset that people can choose to abandon – this growing population must live somewhere – so the law of supply and demand allows for a continued growing demand for property by owners, investors and tenants across the UK.
Another point worth noting is that the structure of employment in the UK has changed dramatically over the last decade from an agricultural and manufacturing based society to one where a greater proportion of GDP is being delivered by the service sector, resulting in significant inward investment in city centre locations. This in turn leads to a greater demand for property in these growth locations, spread throughout the UK. As the workforce – of which employment figures are currently at 97.3% – has become more transient, there is a greater demand for rental accommodation in cities that are service led.
One of the great misconceptions of the UK rental market is that there is an oversupply of buy-to-let properties available to the market. This can be the case in small pocket locations, but as a whole the total rental market in the UK accounts for just 10% of all housing stock, in contrast to the European average, which is 30%. The caveat emptor here to investors entering the buy-to-let market is ‘do your research’. Ensure there is not over supply in any given area by talking to local letting agents and checking how many similar rental properties are on the market against the population of renters in the area; and how long a typical void period in the area would last.
To quote Charles MacKay, author of Extraordinary Popular Delusions, “Time and again we can avoid disastrous pitfalls and learn to profit by seeing the way history repeats itself”. This is particularly true for the UK buy-to-let market when you consider that every year since records for the property market began – including the two house price ‘crashes’ of the 1970’s and 1980’s – UK house prices have double in value every ten years, on average.
Our prognosis? BUY. UK Buy-to-Let is still a sound investment choice for anyone taking a medium to long-term approach to the housing market. Although the specific number of buy-to-let properties is unclear, what is certain is that demand for rental accommodation has risen by 50% over the last ten years and is likely to continue on this growth path.
The drivers of supply and demand, the psychological relationship the Irish and UK public has with owning bricks and mortar, the disillusionment with other forms of investment and the leverage advantages offered by property means that long-term, it is still an excellent investment choice.
In terms of buy-to-let, although demand will always fluctuate over any period of time, there will always be a requirement for quality residential property in key locations, offered at sensible rental levels. The key to this is doing your research, buy at below market values in well-located city-centre developments, and in doing so being a landlord/investor can turn out to be a profitable venture.
Cornerstone Property: t 01 440 2390