If you are thinking of entering the buy-to-let market, now could be a great time to do so. Two recent property market reports have shown that investors are set to make steady returns over the next decade as increasing rents and a house price recovery boost the sector. With competition between buy-to-let mortgage lenders resulting in falling interest rates, it could be the perfect time to buy.
Figures from the Royal Institution of Chartered Surveyors (RICS) show that rents have increased by 4.3% over the past year and are likely to be driven further upwards by a shortage of good quality properties and a lack of access to mortgage finance for people looking to buy their own home. The RICS residential lettings survey for the second quarter of 2012 also predicted that rents would rise by 3.9% on average across the UK over the next 12 months.
RICS global residential director, Peter Bolton King, says: "While tenant interest is still riding high, what remains to be seen is whether many are willing to meet the increasing rents being demanded by landlords. However, it is clear we have seen rents grow steadily right across the UK for some time. This is partly down to the problem of the scarcity of mortgage finance and the large deposits required by lenders."
According to PricewaterhouseCoopers, the return from a property investment over the next 13 years is likely to be similar to that from a 50/50 mix of index-linked gilts and equities. John Hawksworth, PwC's chief economist, said: "Given that housing returns will not be perfectly correlated with returns on equities and gilts, including housing, an investment portfolio together with these other assets could have some advantages in terms of diversifying risk. However, any such decisions need to be based on a detailed consideration of individual investor circumstances and needs to bear in mind that housing is a potentially risky asset as recent experience makes all too clear."
The Council of Mortgage Lenders has also reported that lending for buy-to-let mortgages increased by nearly a fifth in the space of the last year amid strong growth in the rental sector. Lenders advanced 33,200 loans worth £3.9billion in the three months ending June 2012.
Competition in the mortgage sector is also strong. The Mortgage Works has recently launched a discounted rate of base rate plus 3.24% (payrate 3.74%) up to 75% loan-to-value (LTV) with a 3.5% fee. And, Godiva has a deal at base plus 3.3% (payrate 3.8%) up to 65% LTV with a flat fee of £749. Mortgage Strategy reports that "with some economists in The Sunday Times talking up the prospect of base going to 0%, these products might have some additional upside".