The Council of Mortgage Lenders' (CML) annual report terms the buy to let sector "an important source of growth." In 2005, according to the CML, 25 per cent of the private sector rental housing stock was being financed by buy to let mortgages, which accounted for more than nine per cent of all new loans by number in 2006 - up from 5 per cent in 2003.
As for capital values and returns, the latest quarterly survey conducted by the Association of Residential Lettings Agents (ARLA) shows a steadily improving market in 2006. Compared with the third quarter, the average void period fell from 26 to 25 days; once installed, tenants are staying put for an average 15.7 months - marginally up from the average duration of 15.6 months reported at the end of the previous quarter. "These lengths of tenure," comments ARLA's Chief Executive, Adrian Turner, "suggest that the private rented sector is providing the sort of property that people want to live in, as well as giving them choice and flexibility."
However, Turner identifies two potentially difficult factors:
Firstly, immigration from Eastern Europe has failed to fulfill anticipated levels of rental demand - and obtaining references for such tenants can be tricky.
Secondly, increased bureaucracy governing Houses in Multiple Occupancy (HMOs) has proved problematic. According to ARLA, new HMO rules are driving landlords out of the HMO market and dissuading many new investors. ARLA is therefore lobbying for HMO red tape to be reduced - and fast.
Definite but unpredictable changes in the market are on the way: Home Information Packs (HIPs) are due for rollout on June 1, 2007. These continue to attract controversy, although trials were successful (probably due to free inclusion of specialist-generated Home Condition Reports [HCRs]). The Law Society, comments tersely on its website: "We continue to question whether HIPs will bring the consumer benefits intended, and we're monitoring the implementation process."
The Royal Institution of Chartered Surveyors (RICS) is also doubtful about HIPs, despite the fact that the Department for Communities and Local Government has approved the RICS for self-regulation of its own members involved in HCRs - thus far, a voluntary component of the packs. The CML recently dismissed HIPs as "a costly indulgence", claiming in its annual report that HIPs will probably adversely affect both number of transactions and general market liquidity, urging the Government back to the drawing board.
Tenancy deposit protection becomes mandatory on April 6, 2007. After abandonment of the initial scheme, a new structure has been established. The new joint industry insurance-based scheme - the Tenancy Deposit Scheme for Regulated Agents (TDSRA) - will be available via The Dispute Service, under the aegis of ARLA, RICS and NAEA.
Investors - like first-time buyers - should be aware of the possible impact of the Government's shared equity proposals. The Chancellor is seeking to extend the reach of the Open Market Home Buy Scheme to households on lower incomes, and will be launching a competition for lenders to join in a 2008-9 to 2010-11 round of the scheme in the expectation that it will assist more than 160,000 households into home ownership by 2010.
Progress follows confidence, which invariably depends upon activity across a broader market spectrum. So what will happen in the entire field over the next 12 months? It's difficult to say. Amid a plethora of industry and Government statistics, expert opinions and editorial comments, one figure stands out: house prices increased on average by £45 a day in 2006. According to reports, house price inflation has now reached double figures, giving a figure of 10.5 per cent - the first time it's been more than 10 per cent since February last year and the strongest since December 2004.
This situation is unlikely to prevail. There are gloomy messages from certain influential sources: Ed Stansfield, Property Economist at Capital Economics believes that the recent interest rate rises to 5.25 per cent will be "the catalyst for slow down."
Meanwhile, Fionnuala Earley, Chief Economist for a major building society, in common with most forecasters, foresees a gradual slowdown in the residential market after a strong first half. "Increasingly poor affordability," she suggests, "the impact of higher mortgage rates and the likelihood that fewer parents will be willing or able to help their children out, will cause the rate of house price growth to move back into single digits in the second half of the year."
However, although this news may seem dismal, there is one point upon which everybody agrees: property prices that remain high mean there will be growing demand for rental homes. As such, the outlook for investors remains exceptional, with no shortage of confidence among landlords.
Leading market research company GfK NOP's survey of more than 3,500 landlords reveals 95 per cent of respondents plan to either increase or maintain the size of their portfolios, compared with 86 per cent this time last year, and more than half expect to add more properties in 2007. Stability and common sense were key criteria: most landlords revealed they were investing in property for the longer term, with 34 per cent saying they sought capital growth and 38 per cent investing to provide for their pension. Similarly, buying criteria exhibited what the survey termed a collective 'cool head'.
Overall, the buy to let market continues to present especially strong investment prospects for 2007.
