Housing Market: 14.7 Buy-to-Let

A relatively new area of housing has been the ‘buy-to-let’ market, encouraged by government and financial institutions to fill a perceived gap in the market, for those who are not able or have no desire to buy or where the local population is mobile and transient (eg students).

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Providing a more buoyant rental sector

The reputation of the rental sector has been far from unblemished but the need for a buoyant rental market is apparent.

The expansion in recent years has been very rapid, to the point where the 850,000 buy-to-let mortgages now account for almost 10% of the market.

Overcapacity undermined prospects for rental growth

The buy-to-let sector has, however, been particularly vulnerable in the current recession. There was a significant expansion of capacity in major city centres to the point where there was probably overcapacity.

This undermined prospects for rental growth and when interest rates started to move, profit margins got squeezed or disappeared. Much of the buy-to-let was for investment purposes supported by liberal lending policies of some financial institutions.

This part of the market is currently experiencing a painful period of adjustment as rental growth has stalled and selling prices fallen.