Property column

Why the property investment outlook is bright

Writer Nigel Lewis gives his view on the hot topics for either residential or commercial property investors.

 

We’ve all heard about perfect storms hitting different sectors of the economy, but what about the perfect lull? That’s exactly what’s happening in the private residential investment market as it enjoys greatly improved conditions for growth. But why?

Several factors have helped bring this about. Firstly, recent uncertainty about what would happen if there was another coalition has been allayed after the Conservatives clinched a majority. They have said they won’t interfere in the housing market. So, no mansion tax, rent caps, national landlord registration scheme or roll back of buy-to-let tax breaks – policies that many of the other parties had mooted.

The possibility they would be introduced had been making property investors nervous in the run-up to the election and caused a dip in market confidence. This was echoed by the number of buy-to-let mortgages being approved. This fell during February by 13%[1] compared to the month before, according to the Council of Mortgage Lenders (CML) – a figure that may bounce back now the election is over.

Another growth driver in property investment is the money likely to flow out of private pensions and into buy-to-let property following the Chancellor’s new rules on drawdowns which took effect on 6 April. According to a recent estimate, £6 billion[2] could be withdrawn from pension funds this summer, and I expect a significant chunk of this money will be invested in the buy-to-let sector.

The current appeal of residential property isn’t hard to understand. Recent house price rises mean the capital value of most landlords’ assets has increased throughout the term of the last parliament. Rents have risen too, up 15.2% between 2010 and 2015, or 3.6%[3] more than inflation.

Lastly, there are reasons why many brokers and lenders are warming to property investment – it’s one of the less risky forms of finance. Recent figures from the CML show a repossession rate of 0.07% last year for buy-to-let mortgages compared to 0.15%[4] in the difficult early months of 2009. Most people agree this is down to both better economic conditions and an improved credit rating system. So, it’s not unreasonable to predict that the economic warm spells for property investment are set to continue.

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Sources:

[1] ‘House purchase lending fall in February’, CML website, 14 April 2015.
http://www.cml.org.uk/cml/media/press/4183

[2] ‘£6 billion will be withdrawn from pensions in the first 4 months after April due to new freedoms’, Hymans Robertson website, 12 January 2015.
https://www.hymans.co.uk/news-and-insights/all/

[3] ‘March 2015 – ‘Buy to Let Index’, Reeds Rains website, 23 April 2015.
http://www.reedsrains.co.uk/blog/post/2015/04/23/March-2015-Buy-to-Let-Index.aspx

[4] ‘Arrears and possessions still falling’, CML website, 13 November 2014.
http://www.cml.org.uk/cml/media/press/4063

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