12 June 2014
Buy to Let landlords have not been shaken by the credit crunch. Nine out of ten surveyed during the last quarter of 2007 state they have no intention of selling their properties for nearly 17 years. Four out of ten of them expect to invest furt
Buy to Let investors borrowed an average of 70% of the purchase price, down from 74% in the previous quarter. More than one in six borrows less than half. The average life expectancy of these Buy to Let investments is 16.7 years. This figure has been fairly constant for the past three years. Only one in 12 expect the investment to be less than five years and a mere 2% see it as short term, i.e. less than two years.
The quarterly ARLA Review and Index is distilled from information provided by investor landlords who subscribe to the ARLA Buy to Let website, as well as member letting agents.
The publication of the Review and Index is supported by the ARLA Group of Mortgage Lenders: Bank of Ireland, Cheltenham & Gloucester, GMAC - RFC, Mortgage Express, NatWest and Paragon Mortgages.
Although the majority of investors have bought existing properties, in good condition and ready to let, 7.5% reported buying off-plan during the last quarter.
"Buying off-plan flies in the face of the continuous warnings given by ARLA and the ARLA Group of Mortgage Lenders that this kind of property investment cannot make for a realistic Buy to Let investment proposition," said Ian Potter.
"The rental market is too fluid to make judgements on rental values and likely demand months or even years in advance, for property that has yet to be built," he continued. "We cannot repeat this warning often enough. The potential investor must take local advice from the professionals about the property, the way it is furnished and the realistic market rent."
However, the vast majority of respondents to the survey state that they tend to side with caution and to give themselves a cushion, both in terms of equity and rental income. Well over half are cautious over both considerations.
On average, Buy to Let investors have been residential landlords for just over six years. Only two out of ten have been landlords for less than a year.
The Review and Index for the last quarter of 2007 shows the average rate of return on a cash purchase of residential investment property at 10.8% and for geared investments, assuming a 75% mortgage, 21.43%.
The fourth quarter surveys were carried out too early to judge any possible effect on the proposed changes in Capital Gains Tax from next April. Should tax relief on mortgage interest for residential investment be disallowed, a comparatively high figure, 37%, said that this would not influence them, although a further quarter said they would sell all or some of their property investments.
Warned Ian Potter, "Any alteration in the reliefs could seriously damage the Private Rented Sector. It is only with the help of the refinancing by Buy to Let investors that the sector has become properly viable again although, even now, we are still experiencing a severe shortage of property."