Renters suffer as buy-to-let mortgage market grows

July 16, 2013
3 min read


The buy-to-let market has performed remarkably well over the past few years. Whilst the mortgage market has struggled, the buy-to-let mortgage market has shown resilience. Investors have been attracted to the market by strong tenant demand and high rental yield potential.

Buy-to-let is steadily increasing its proportional share of the total mortgage market, in 2012 for example, it made up 13% of the total mortgage market. As well as this the value of new advances in the buy-to-let mortgage market is expected to grow over the next five years, from £16 billion in 2012 to an estimated £35 billion in 2017. This is driven by the fact that many first-time buyers are unable to take this first step onto the property ladder due to unachievable deposit requirements and stricter lending criteria. The consequent upturn in demand for rental property is starting to slowly and subtly alter the landscape of the British housing market.

Despite the economic difficulties and limited growth in the housing market, property is still seen as a solid investment by many. For example 55% of people agree that investing in property is safer than buying stocks and shares and 36% would rather invest in a rental property than a pension. Currently 11% of adults own a property which they rent out, this figure is set to grow as 18% say they would be interested in buying a property to rent out, but not within the next couple of years. Though this figure does suggest more reassurance in the market is needed. Some 8% of people however stated that they would be interested in entering the buy-to-let market in the next couple of years.

Buy to let market in the uk

Mintel research reveals that 39% of rental property owners have been renting out their property between one to three years. This group has taken advantage of the decline in house prices to purchase property cheaply and therefore increase their potential yield. Rental properties offer owners a potential for profit in two ways. Firstly as an investment asset, the property value can increase and offers a potential for profit when sold. Indeed 31% would consider buy-to-let with the view to selling for profit. Secondly, generating income from rent;   half of people who would be interested in purchasing a buy-to-let property  have/would considered doing this purely to generate an income through rental.

Some groups are faring worse than others as a result of the economic conditions and the success of the buy-to-let market is in many ways at the expense of first-time buyers. People who cannot afford to buy their own home are trapped in the rental market, and in turn are driving demand for rental properties. Indeed 77% of consumers think house prices are still out of reach for first-time buyers and 45% are nervous about buying a property or getting a new mortgage in the current economic climate. This has led to a feeling amongst 55% of consumers that landlords are profiteering from the largely unregulated buy-to-let market, by taking advantage of those who cannot afford to buy their own home.

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