Luke Gidney, director of letting agency Let-Leeds says 2014 looks set to be the year buy-to-lets skyrocket but he adds there could be a sting in the tail...
With interest rates having been at a historic low for more than five years and with cautious optimism over signs of a possible economic recovery, many are predicting this will be the year the Bank of England decides to increase those rates.
But what will that mean for those buying and renting?
He said: “A survey has shown that 57% of landlords expect to expand their property portfolios in 2014.
“With mortgage lenders having lowered their buy-to-let mortgage rates and one in six people now living in private, rented accommodation, the rental sector looks set to increase in size.
“From our experience, buy-to-let activity has certainly been on the increase over the last six months.
“But in Leeds this boom has not been very easy to sustain for a number of reasons.
“In this city, there is a shortage of what you might call typical buy-to-let stock. By this, I mean the small, one or two-bedroom flats and houses that can be bought for £125,000 or less. It is hard to find this type of housing – the type that is generally classed as good investment property. And in a city like Leeds that has had a marked effect on the property sector.
“For a start, the scarcity of the buy-to-let type of property has led to a sharp increase in the price of many small houses and flats.
“The old economic principle of prices being pushed up when demand outstrips supply certainly seems to be the case in the city.
“This has been exacerbated by the impact of low buy-to-let mortgage borrowing rates. Such rates mean that there are higher rental yields to be made on such properties.
“So when you combine low mortgage rates with high rental yields and a shortage in suitable housing stock, it is no great surprise that prices are going up.
“Investors have done the calculations, have worked out the conditions are right for making a tidy sum and have hunted down the right properties.
“The fact that such properties are in short supply has led to prices going up and auction rooms across the region becoming stuffed full of investors – all of whom are looking to snap up buy-to-let properties to increase the size of their portfolios.
“When you add to this both the fact that buy-to-let mortgages are currently quite easy to obtain and the incredibly buoyant state of the rental market, it is clear that the conditions are all in place for the current trend to increase.”
But he added a note of caution...
“It would, however, be wrong to assume that this can continue for ever.
“An increase in mortgage rates could see the feeding frenzy for buy-to-let properties end suddenly.
“ Similarly, if the prices of potential buy-to-let properties rise too high they will cease to be a worthwhile investment for the landlords who are currently doing all they can to increase the size of their rental portfolio.
“Like all trends, this cannot carry on forever.
Luke Gidney is Director of Let-Leeds. www.let-leeds.com
Let-Leeds, which is based in Leeds and York, has been named Northern Lettings Agency of the Year Gold Award (Single Office) winner in The Times and The Sunday Times 2013 UK-wide awards. It has also been named a Gold Award winner in the 2013 ESTAS.