Buy-to-let market remains resilient

Buy-to-let investors have shrugged off a slide in the value of rented houses with almost half of existing investors planning further purchases in the market.

Nine out of 10 landlords have no intention of selling their properties, according to the fourth-quarter survey of the Association of Residential Letting Agents. Four out of 10 expect to invest further in the private rented sector this year.

Arla stated that the findings were the first to show that confidence in the buy-to-let market had stood up to problems caused by the credit crisis.

“This is good news for the housing market, particularly as it comes from surveys carried out well after the credit crunch had began to bite,” said Ian Potter, Arla’s head of operations.

There have been fears that the buy-to-let market could grind to a halt as  the cost of financing begins to rise at the same time as prices in the housing market fall.

Lenders have certainly tightened buy-to-let lending criteria and raised rates in recent months to reflect their own difficulties in borrowing money on the wholesale money markets.

The average value of rented houses fell by 1.3 per cent over the quarter, according to Arla, with falls of 5.3 per cent in the south-east and 4.6 per cent in the rest of the UK being offset in part by a 2.9 per cent appreciation in central London.

Arla said that the market was being sustained by the income generated and a healthy level of demand from occupiers fuelled by a shortage of available housing.

The average rate of return on a cash purchase of residential investment property was 10.6 per last year, and for geared investments, assuming a 75 per cent mortgage, 21.2 per cent.

The survey showed that buy-to-let investors borrowed an average of 60 per cent of the purchase price,  down from 74 per cent in the previous quarter, which an Arla spokesman described as sustainable level of borrowing .

But Arla warned prospective investors to avoid buying property “off-plan” not yet built which it described as risky in current market conditions. The survey showed that 7.5 per cent purchases were made off plan during the last quarter.

Recent studies from lenders such as Bradford & Bingley and Alliance & Leicester have shown similar level of interest.