News
Investors to look elsewhere as BTL sector shrinks
August 14th 2008
The buy-to-let property boom has come to an end, according to investment company Skandia, as falling house prices, higher mortgage costs and slow rental growth are causing investors to pull out of the market. It is expected that beleaguered buy-to-let investors will pull ?18 billion out of the property market in the next few years and seek to place their cash elsewhere. Skandia expects the buy-to-let sector to shrink by around two-thirds in that time as residential investors flee the market.
This will drag down the housing market even further, as a glut of properties will flood the market at a time when potential buyers cannot raise sufficient funds to finance a purchase.
Over the past decade the buy-to-let market has exploded, with mortgage borrowing rising from ?2 billion in 1998 to ?120 billion at the end of 2007. Buy-to-let purchases now account for 10% of all mortgages, in comparison to just 1% ten years ago, and they have been a key factor in the growth of many of the more speculative inner city developments over the past few years.
But with the severe tightening of lending criteria as a result of the credit crunch, the number of buy-to-let mortgages available has fallen 85% in the past year, from 3,478 to just 528, according to financial website Moneyfacts. And Skandia said it expects the value of outstanding buy-to-let mortgages to drop from the current ?120 billion level to just ?44 billion in the next few years.
While house prices have been falling throughout the UK, the properties most affected in this decline have been new-build flats and properties designed to be sold as investments.
Skandia?s chief executive, Nick Poyntz-Wright, said that ?Higher mortgage rates and falling property prices will cause investors to reconsider their exposure to residential property and many will choose a more diversified approach. With inflation rising, investors realise the need for strategies that preserve their wealth."
But other analysts expect the rental market to remain a key part of the property market. More and more homeowners are being forced to rent their properties after failing to sell, according to a survey from the Royal Institution of Chartered Surveyors. RICS said that instructions to rent properties increased greatly in the three months to July, with 43% more surveyors reporting a rise in the number of new landlord instructions than those reporting a fall. But surveyors expect a slowdown in rentals in the coming months, as the number of new tenants coming to the market levels off and more families put their properties on to the market.
For press enquiries, please contact Phil Rendall on 020 7099 9026
Email: phil@dhbuyers.co.uk
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