So could 2007 be the year to get into buy-to-let? The answer is “yes” — that
is, according to those who have already taken the plunge. Bradford &
Bingley, a financial-services provider, recently surveyed more than 3,600
landlords and landladies and found 95% intend either to increase their
portfolios or at least hold on to their existing holdings.
“Evidently, landlords feel confident that there are good deals to be had out
there, because our results suggest the market
will continue to grow,” says Gus Park, head of buy-to-let mortgages at
Bradford & Bingley. “There are now so many experienced landlords out
there; more than half the landlords we surveyed have been in the field for
five or more years.”
So are they right to be so confident and should you follow their example? If
you see property as a long-term investment or as a pension, then the outlook
looks promising, at least for the next 12 months or so. Most housing market
analysts expect prices to continue rising in 2007, with the strongest
performance again predicted in London, Scotland and Northern Ireland, even
if growth, at an average 5%-8%, is unlikely to match this year’s levels of
close to double digits.
Yolande Barnes, head of residential research at Savills estate agency, which
is looking for a 7% rise, warns there are potential pitfalls, however. Chief
among them is oversupply.
“We are bullish about properties doing well in London and the southeast, but
if there are lots of new developments, then capital values are suppressed,”
Barnes says. “The problem with investing in a new-build buy-to-let flat is
that if it is in a large block, you will be competing for tenants with lots
of other landlords.”
The trick, says Barnes, is to stop thinking about the usual buy-to-let
offering — the two-bed, two-bath new-build urban flat — and go for large,
high-quality family homes within easy commuting distance of the capital,
especially ones in attractive cathedral, university and market towns.
“People anxious for good schools and some outside space are moving out of
London into what we call über-towns, places within an hour’s commute with
fantastic amenities,” she says. “We spotted this trend earlier this year and
saw islands of high house-price growth in these towns.”
But does anyone actually want to rent these properties? Apparently, yes.
“There are so many people trying to get into these towns, who have sold up
their main family home before buying a new one, that there is a very strong
rental market,” says Barnes. “I would advise looking at places such as
Winchester, Guildford, Oxford, Cambridge and St Albans. Canterbury isn’t yet
within the one-hour commuting bracket to London, but it probably soon will
be, so it might be worth a punt.”
Ajay Ahuja, a hot spot expert who has written nine books on property
investment, suggests a very different strategy: his eyes are fixed on north
of the border — where both affordability and rental yields remain high,
despite what the Halifax bank estimates was a 12% increase in Scottish
prices this year. His top three suggestions are Greenock in Renfrewshire,
Cumnock in Ayrshire and Campbeltown, Argyll & Bute.
“You can get a two-bed flat in one of these towns for £20,000-£50,000, and a
house for £40,000 to £70,000,” Ahuja says. “I’d say there would be 100%
capital growth in these sorts of places within the next three years, because
they are so cheap.” Oh, and the rental yields in all three can still be as
much as 10%.
You are unlikely to get anything like that return elsewhere in Britain these
days, but there is some positive news on rents. Analysts estimate they rose,
on average, by about 6% this year and will go up another 4% in 2007. Despite
talk of a glut of flats in Manchester, Leeds and other big northern cities,
there is still plenty of demand for rented accommodation — if only because
of the difficulties faced by many potential first-time buyers in getting
their feet on the housing ladder.
Only 26% of the landlords in the Bradford & Bingley survey said they had
experienced unplanned voids in the past six months, and most of those were
short term — meaning less than a month.
It is great to know that rents will remain on an upward trend but if, as
expected, interest rates rise another 0.25% in the new year, then, warns
Justin Urquhart Stewart, a financial adviser at Seven Investment Management,
this could make it difficult for owners already trying to digest this year’s
two interest-rate rises.
“We are seeing a higher level of repossessions, as people have been hit by the
latest rise and can’t afford to keep their properties,” he says. One
person’s distress can be another’s opportunity, however — and plenty of
canny investors are waiting to swoop.
Urquhart Stewart advises listening out for the sound of local market bubbles
bursting. “In places such as west London or Edinburgh, for example, the
market is not one great gig bubble, but more like a bar of Aero with lots of
different bubbles,” he says. “It happened in Southampton three years ago.
Rental yields locally suddenly went down to 2% and lots of people sold up.”
But how do you track down these elusive bubbles? “Good, old-fashioned
looking,” Urquhart Stewart says. “And think about buying on the second wave,
say three years after a development has opened. Typically, Fulham Man, as we
call him, bought several off-plan flats in 2001, without thinking about the
voids and rise in interest rates. Now he is desperate to get rid of them.”
So get in there with a rock-bottom offer, and you might have a winner.
Apart from searching for exploding bubbles, checking out family homes in St
Albans or touring remote Scottish towns, the other thing that landlords must
focus on in 2007 is more buy-to-let legislation. For those of us who rent to
sharers, this means making sure we are complying with the new licensing laws
surrounding Houses in Multiple Occupation that came into effect this year.
Then there is the Tenancy Deposit Scheme, which comes into force on April 6.
Under its provisions, landlords must hand over tenants’ deposits to an
insurance-backed scheme operated by the Dispute Service, which currently
runs a similar scheme for the Association of Residential Letting Agents
(ARLA).
“People who can’t be bothered with all this legislation will have to get out,
and people who want to stay in for the long haul will have to become a bit
more professional,” says Barry Markham of the Southern Private Landlords
Association.
Adrian Turner, ARLA’s chief executive, agrees. “There is quite a lot of
legislation and regulation coming in which might dampen the current
optimism,” he says.
“A campaign starting in mid-January will advise landlords what to do.” Happy
New Year.
Buy-to-let advice from Rosie Millard can be found online at www.timesonline.co.uk/investmentproperty
