Almost a quarter (23.4%) of landlords plan to expand their property portfolios over the next five years, according to research carried out by the National Landlords Association...

Nearly 60% of landlords believe the size of their property portfolios will remain unchanged over the same period. Fewer than 18% of landlords suggested the size of their portfolios would reduce over the same timeframe, and a tiny 2.4% said they planned to exit the private rented sector completely.

Currently, NLA members have an average of 9.4 properties in the lettings market, a number that has remained steady over the past year. But according to the latest survey results this number is set to go up in the future.

Chairman of the NLA, David Salusbury said, “The fall-out from the so-called credit crunch has dominated public attention in recent weeks, but in times of financial uncertainty people continue to need a roof over their heads. That landlords are committed to invest further in the private rented sector over the next five years demonstrates that they remain confident about their businesses over the medium term.”

Private sector will play a ‘key role’

Landlords fulfil the valuable social function of providing affordable housing for a wide cross-section of people in society. With the latest statistics from the ONS estimating the UK population will reach 70m by 2028 and an extra 5 million households set to be created over the next quarter of a century, continued investment by landlords will be essential if the UK is to meet the demand for rented homes.

David Salusbury continues: “As the population grows and the number of households in this country continues to expand, the private rented sector will play a key role in providing homes to a larger number of people who need either a temporary or a longer term housing solution. That includes people who move jobs, those who have arrived in this country from abroad, families who are on benefit and some of the most vulnerable sections of the community.”

Renting is not the housing choice of last resort, however. Many people regard renting as a lifestyle choice that gives them greater flexibility and can be more cost effective than buying. The quality of rented properties has risen steadily, according to the English Housing Survey.”

Caution is appropriate for newcomers to buy-to-let, however, and people purchasing investment properties must do their homework, check the sums add up and ensure they understand their rights and responsibilities.

Long term perspective needed
Mr Salusbury continued: “Residential property investment is not a means of getting rich quick. t is unclear as to whether house prices will rise or fall over the next 12 months, and those who are buying a property to let as someone’s home need to have a medium or long-term perspective.

“Demand for the right property in the right location remains sound, but there is an over supply of new build flats in some areas, which may make them difficult to let or sell.”

“Landlords must be familiar with their legal obligations, in terms of health and safety requirements, houses in multiple occupation, tenancy deposit protection and tax. The NLA is committed to supporting the independent landlord by offering extensive information and support in return for a modest annual subscription.”

The number of new mortgage approvals fell by 20% in September from a year earlier, reports the BBC…

According to Bank of England figures, 102,000 new mortgages were approved for house buyers in September 2007 - 25,000 fewer than in September 2006, and 6,000 fewer than in August, the Bank said. The figures add to the growing body of evidence that the property market is now cooling off rapidly. Recent surveys have shown that price growth is slowing down in many areas.

Last week the Land Registry for England and Wales reported that annual property price inflation had dropped in September to 8.7% from 9.4% in August, describing this as a "noticeable dip". Other recent surveys, from big mortgage lenders, surveyors and the Department of Communities and Local Government, have all been pointing in the same direction.

Continuing downturn

The number of new mortgages approved by UK lenders in September was the smallest monthly amount since July 2005. The downturn has been going on since the summer of 2006, when the Bank of England imposed the first of five increases in interest rates.

But the squeeze on the market now seems to be gathering pace as higher borrowing costs and prices that have still risen briskly in the past year have finally taken their toll.

This slowdown will manifest itself most obviously in 2008, according to the Council of Mortgage Lenders (CML). Publishing its annual housing market forecasts, the CML said that house price growth would slow down to just 1% from an eventual 7% this year.

Slow but not stagnant

And it predicted that there would be a 15% decline in property sales during 2008, down to 1.01 million from an expected 1.17 million this year. "We now expect a slower mortgage market next year, although by no means a stagnant one," said Michael Coogan of the CML.

"Most borrowers will cope, but not everyone will escape unharmed from the effects of a slower market," he said. The CML also forecast a 50% rise in the number of home repossessions in 2008. And this would be made worse by wider credit problems globally, with lenders setting increasingly strict criteria for borrowers, so that remortgaging would be harder.

Commenting on the CML's figures, Adam Sampson, head of housing charity Shelter, said: "These figures will no doubt set alarm bells ringing for hundreds of thousands of homeowners across the country".

New buy-to-let investors may need more patience to realise good returns…

Lower house price inflation may have especially strong implications for aspiring buy-to-let investors. Landlords who entered the buy-to-let sector near the start of the decade have made enormous returns, but strong house price growth relative to rents has pushed net rental yields well below the current cost of a mortgage.

This implies that without very strong capital gains, a new entrant into the market would make negative total returns in the short term until rents caught up sufficiently to cover operating and mortgage expenses.

Private sector rents ‘robust’

There is now evidence that after several years of weakness, private sector rents are growing more robustly. Even so, rents would have to rise very strongly relative to house prices to make short-term buy-to-let investments profitable at current interest rates.

Nationwide’s Fionnula Earley commented “Investors with long horizons can still make satisfactory returns if long-term historical trends for house prices and rents hold up.

“The government’s latest projections show that the 15-34 year old population will be increasing until the middle of the next decade, and this should be supportive of both tenant demand and rents.

“Even with only modest house price inflation, these conditions would produce relatively healthy returns over a 10-15 year horizon

Despite speculation of a housing and buy-to let decline, Assetz, the property investment specialist is urging the medium term investor to capitalise on the current climate and invest in buy-to-let, with current market conditions giving excellent opportunities for investors.

With rents predicted to reach record growth rates*1, bank base rates on the way down, a number of forced sellers discounting their property to hagglers and developers launching enticing incentives, now is proving an excellent time for careful investors to get into the market, with the most profitable rental income situation seen for years.

Great opportunities available

A growing number of potential first time buyers are reported to be staying in rented accommodation*2, awaiting greater market certainty. As a result, demand for rental property is strong and rental incomes are expected to grow over the coming months, as the balance between supply and demand is altered and demand for rental property outstrips supply*3. RICS has recently commented that apartments will see the strongest rental growth, clearly discrediting rumours of a UK wide oversupply.

Stuart Law, Chief Executive, Assetz comments: “While the market has been subject to much speculation and turmoil over the last few months, there is significant evidence to suggest that for those taking a medium to long term perspective, now is an excellent time to invest in buy-to-let property.

“As the number of sales slow, UK developers are offering some great opportunities. Developers need early sales on a scheme in order to achieve bank funding, with typical high-density apartments proving ideal for renting. However, my advice to investors would be to ignore simple price drop incentives and to look for what impact the discounts will have on yields and on overall return on investment. Don’t just buy flats but diversify into houses, both new and old and possibly include some high-yield student accommodation.

“With interest rates predicted to fall imminently, and rents rising, both new and established investors will soon reap the rewards of higher rental yields with positive cash-flow. Any lower prices offered by the few sellers in the market will be taken advantage of by aggressive buy-to-let investors and combined with rising rents they will see high yields, not experienced for a few years.”

Zero chance of price crash

Assetz predicts that rents will have risen by 10% over the last year, with a further 10% rise predicted for 2008, making almost all current property investments cash positive, even if an investor is having to subsidise their mortgages at present.

Law concludes: “If you read up on the facts and bear in mind market dynamics, there are great foundations in place for UK residential property to prove a rock solid investment over the next 10 years. My advice would be to target smaller households in the right areas and to keep cash in reserve for short-term risks but don’t miss this ‘perfect storm’ of a buying opportunity.

There is a zero chance of a house price crash at present and high certainty that a 4.4m, Government predicted increase in our population by 2016 will give plenty of capital growth, on top of the rental profits now beginning to flow through.”