A rise in house prices could prove to be beneficial for the UK’s buy-to-let market
05-24-2014
ERE Property
Paul Harrison – managing director of Leeds based ERE Property
Mark Carney, the governor of the Bank of England, recently commented on the current rise of house prices in the UK, attributing the surge in prices to the existing shortage of homes in the UK at the moment. According to property website Rightmove, the average asking price is almost 9% higher than that of 2013, reaching a record average price of £272,003 in May of this year.
The London “property bubble” is experiencing even more intense upsurges in price, with a rise of over 16% since the previous year. Demand for housing remains strong, yet there is just not enough stock on the market to fulfil the needs of all who wish to purchase their own properties – “it is underpinned by a long-term demand and a genuine shortage of housing supply.” (Mark Carney)
Whilst lending to owner occupiers may have tightened due to the Mortgage Market Review (MMR), buy-to-let mortgages remain popular and in high demand. The MMR is a system that has recently been put in place to more closely assess the eligibility of mortgage applicants and tighten the restraints for mortgage applications. It aims to cool off the market and stop house prices from accelerating so rapidly to ensure only people that can afford to buy are able to buy.
This is positive news for buy-to-let investors as the tightening of restrictions for owner occupancy mortgages may force people into renting instead of buying their own properties. Research from February this year has shown that “the overall number of homes lived in by owner-occupiers has fallen from 71 per cent in 2003 to 65.2 per cent last year, the lowest level since 1987”, thus seeing the number of people renting almost double.
Chief executive of Legal Marketing Services Ltd (LMS), Andy Knee, said that “through effective use of MMR we can ensure the market continues to thrive, especially in the context of a stronger economic outlook with higher employment figures and lower inflation.”
This news could prove to be highly beneficial to the buy-to-let market, as more people may be forced to rent with the tightening up of mortgage lending. Increasing rents and prices would be a huge advantage to buy-to-let investors who purchase now, and already, recent research shows that 60% of landlords plan to increase their property portfolios over the next six months.