Happy birthday! 15 years on, is buy-to-let still the best place to invest your money?
15 years on from the official birth of buy-to-let in the UK, the sector shows little sign of slowing down as only 10% of investors think that now is a bad time to invest in property. The overwhelming majority are planning to expand their portfolios this year to take advantage of rock bottom prices and surging rental demand.
And why not? According to a recent survey by Assetz nearly half of those landlords who took part in the survey are achieving yields of 5.5% with almost a fifth achieving yields of 9% or higher. Not bad by any standards and certainly better than you’ll get from money in the bank.
The UK buy-to-let sector celebrates its 15th anniversary on the 24th September following its official launch by the Association of Residential Letting Agents in 1996. Buy-to-let was born at a time when the UK property market was firmly in the doldrums following the crash of the early 1990s. Mortgage rates and repossessions were at all-time highs as many homeowners felt the effects of negative equity and job losses.
At the end of this cycle however, came huge demand for property, not only amongst those with ambitions to own their own homes, but also investors who could see the huge potential of investing in a portfolio of properties. The UK buy-to-let sector has since developed into a strong, reliable market and a relatively safe haven to invest in compared to the turmoil experienced in equities.
Certainly it hasn’t been good news all the way, but for those who have invested in the right areas, their investments will no doubt have more than doubled in value if they invested in their first properties 15 years ago. This makes it a particularly attractive asset class even in today’s troubled economic times. It is worth remembering that before the buy to let helped transform the residential property landscape in the mid-1990s, the UK housing market was in a far worse condition than it is today.
Buy to let investors are often accused of helping create the housing bubble that contributed in part to the credit crunch of 2008, however those investors have helped bring improvements to the private rented sector, which may not otherwise have been possible. The sector represented just 7% of all housing 15 years ago. Now 1 in 6 households belong to the private sector which gives some insight into the scale of expansion and the strong underlying fundamentals of the sector.
Stock markets may be tumbling now, but the inexorable rise of the UK buy-to -let investors profiting from property shows no sign of decline. In fact many are cashing in on rising rents which rose a further 1.2% in August this year. Average rents across England and Wales now stand at £713 per month, rising from £705 in July.
Demand for housing is unlikely to decline in the UK anytime soon due to the shortage of supply and with the difficulties faced by most of the population in getting on the housing ladder, this can only mean further rises in rental yields until banks feel more confident to offer realistic deals to first-time buyers and those struggling to move up the housing ladder.