3 min Read
13 Aug 2013

Written by Liam

Over 30 years experience in financial services, residential lettings and property sales. Director of a leading national estate agency chain, until leaving in 2008 to pursue other commercial interests. Vast experience in new business development, business change, management development and business strategy.

More about Liam

Are there cracks appearing in the buy-to-let market?

for rent signFigures released last week by The Council of Mortgage Lenders showed new buy-to-let mortgages arranged in the UK were at their highest level since 2008. These new mortgages were equally split between house purchase and remortgage, with an increasing number of landlords looking to secure a more competitive deal on their loans.

On the face of it this figure paints a healthy picture for any current, or potential, buy-to-let landlords. However, if we look a bit closer are we seeing some cracks appearing in the buoyant  UK rental market?

Rents have stopped increasing

According to the Buy-to-let index supplied by LSL Property Services plc rental increases have been slowing for a number of months but in June rents were at the same level as in May. In the last  five years rents in June have risen by 0.8% so a drop to 0% is significant. The so called affluent South East (excl. London) has seen rents fall by 0.4% between May and June. This continued slowdown leaves rents only 2.6% higher than the same month last year - below the level of CPI inflation.

New tenant numbers are falling

In June new tenancies fell by 0.8% across the UK. Although there was a  year on year growth in new tenants of 3.5%  further falls on a monthly basis can only put greater downward pressure on rents.

First-time buyers are on the increase

According to The Council of Mortgage Lenders 68,200 first-time buyers bought property in the second quarter of 2013, the highest level since the pre-crisis peak of 2007. With the Government's Help-to Buy scheme starting to be rolled out it is likely that these numbers will continue to increase.

So what does all this mean?

Well, clearly there is pressure on residential property rents as tenants start to drift away from renting and into purchasing. This could mean expensive void periods as landlords seek new tenants. If rents continue to fall then landlords will be achieving below inflation rental yield on their properties. This could put pressure on first time landlords if rents fall below their monthly mortgage payments. If some landlords decide to exit the market and require a speedy sale then this will drive down property prices and only encourage more buyers into the market.

Having said this, one zero increase on rents is not the end of the world but looking at the figures I, for one, would be very cautious about entering the buy-to-let market until the future is clearer.

Looking for a financial adviser near you?

Do you need financial advice? An independent financial adviser can show you how to make the most of your money.

Simply find your nearest qualified and regulated adviser using the UK’s largest adviser search.