Taking the long view
Jill hopper considers the results of our latest confidence survey and finds that many landlords remain upbeat
In recent years the buoyant UK economy and booming housing market led to a period of strong growth in the buy-to-let market. This boom inevitably attracted a certain number of speculative property investors interested in short-term gain, as well as generating its share of fraudulent activity. This led to many media headlines as the downturn in the housing market began to bite.
However, behind the headlines lies a very different reality. The UK’s million or so outstanding buy-to-let mortgages are underpinned by a solid core of honest, professional landlords who have invested for the long-term. Our latest independent survey of landlords’ opinions, conducted by GfK NOP in September and October 2008, showed that these individuals remain stable, confident and optimistic.
While they acknowledge that the current economic climate is tougher, landlords are largely content with the size and management of their property portfolios. Indeed, 90% are planning to maintain or increase their holdings over the next six months. Only 3% say they plan to decrease their portfolio and just 1% plan to quit the market (Figure 1).
Increased appetite for renting
The vast majority of those surveyed remain positive about the rental market. The healthy demand for rented property continues, with 42% of landlords stating that rental levels have increased (compared to 37% in the last survey) and a further 51% saying levels had stayed the same (compared to 59% previously). A third said demand for rental property had risen (Figures 2&3).
Despite the upheaval in the economy and housing market, landlords have seen only a minor increase in the number of unplanned voids and rent arrears, both up by just 2% to 25% and 29% respectively (Figures 4&5).
Landlords remain cautious about embracing new build properties. Consistent with our last survey, the number with no new builds in their portfolio was 58%. Just 3% held more than five new builds in their portfolio, compared to 4% previously. The most popular holdings remain one-and two-bedroom flats (owned by 87%) and terraced properties (held by 59%).
The typical landlord
The profile of landlords has not changed significantly since our last survey. They are generally aged 36-55 (62% compared with 63% previously). The proportion investing in property for more than five years has risen since last time, from 59% to 62%. Meanwhile, the employment status of landlords has remained very similar, with 74% employed or self-employed, compared to 77% in May 2008.
To achieve capital growth and to provide a pension remain the dominant reasons for investing in buy-to-let, although those using property for capital growth has fallen from 52% to 46%, perhaps reflecting a more realistic view of growth prospects at a time of falling property prices.
Weathering the storm
We asked landlords specifically how they felt about buy-to-let in the light of the credit crunch and the challenging economic climate. The majority were sanguine: 46% of respondents stated that it had no effect on the way they view property investment, 16% felt they had cause to be optimistic about the market and 33% said they felt less optimistic.
The general consensus was that although the capital value of their portfolio may have decreased, those who take a long-term view may be happy to weather the storm, provided they continue to receive rental income. Indeed, it was clear that some landlords regard the drop in property prices as a welcome opportunity to add to their portfolios at a reduced cost.
The current conditions will undoubtedly provide many challenges, even for experienced landlords. The worsening economic climate may see the rental market deteriorate, as rising unemployment leads to increased rent arrears. Fewer house sales during the downturn may also result in rental properties flooding the market.
Despite this, many landlords believe they are well placed to ride out the downturn, even though they acknowledge there may be a difficult period ahead.
Figure 1. What are your portfolio plans over the next six months?
Figure 2. Compared to 12 months ago, how is the rent for each property?
Figure 3. Over the past six months how has demand for rental accomodation changed?
Figure 4. Over the past six months have you experienced any void periods?
Figure 5. Over the past six months have any of your tenants gone into arrears?
Figure 6. What do you expect rent levels to do over the next six months?
To view or download a copy of the full Buy-to-let Confidence Study, click here
