Young people, from Generation Rent, especially those living and working in London, priced out of the property market there, are able to get onto the housing ladder elsewhere using a rather unconventional route.
Although they may be unable to live in the property themselves, at least they have a foothold on the property ladder, and they can also benefit from the income it brings when they let it out as a landlord.
This, it would seem, is an ideal way to progress to owning their own home for the young person willing to take the initiative and to buy a property which they can afford, using a buy to let mortgage.
The Guardian Newspaper has reported that despite George Osborne’s budget crackdown, there’s a growing breed of ‘amateur’ investor using buy-to-let for reasons which, at first sight, are not entirely obvious. And despite the unexpected crackdown in Mr Osbourne’s post-election Summer Budget last month, which means some landlords from next April will start losing a major tax break on their rental income, the number of landlords still looks likely to continue growing.
According to a report published by the accountancy firm PwC last week, by 2025 more than half of those under the age of 40 in the UK will be living in privately rented properties. In the 10 years from 2005 the number of outstanding buy-to-let mortgages as a percentage of the whole mortgage market has almost doubled from 7.7% to 15% now.
As a result of a more relaxed assessment regime for buy to let mortgages than owner occupier ones, there’s been a boom in the take-up of them, But now the Bank of England (BoE) has voiced its concerned that rather too much debt is riding on the sector, so much so that it could destabilise the banks if there were to be another financial crash. It is thought likely therefore that the BoE will act soon to restrict access to the risker elements of buy to let borrowing.
Despite all of this, PwC predicts that in 10 years 7.2m households will be in rented accommodation, compared with 5.4m today and just 2.3m in 2001.
According to the National Landlords’ Association (NLA) part-time landlords, those letting out one or two properties whilst at the same time holding down a full time job, has reached its highest-ever level at 70% of the total. Approximately half-of these people will managing the property for themselves, as opposed to using a managing agent.
Brian Murphy of Mortgage Advice Bureau told the Guardian Newspaper:
“In recent times a number of portfolio [large] landlords have become locked out of the market as lenders have restricted the number of properties they will lend on. In addition, for those new landlord borrowers, or those termed ‘amateur landlords’, who have perhaps two or three properties in the sector, is at its best since the onset of the financial crisis, with lower interest rates, higher loan-to values and ever more lenders providing choice.”
At the age of just 25 Shivi Hotwani is still living at home with his parents in north-west London. He has spent years saving and has now got a foothold on the property ladder. His £160,000 two-bed flat is not in London where he lives and works as a conference manager, but in Nottingham, an area he could afford to buy in, he says:
“I wanted to buy a flat in London as I have lived here my whole life but, even with my parents help, I just can’t afford to.”
He realised he would need to take an unconventional approach if he was ever going to get his own home, so instead, he took out a buy-to-let mortgage and bought his first property in Nottingham. Shivi is just one example of a growing trend, a breed of “amateur” investor who is willing to “think outside the box” and become a landlord first.
Shivi Hotwani never expected to own a property of his own in his 20s, but with a decent deposit he turned to buy to let, and to Nottingham, where he had visited friends who were at university there in the past.
“I’d like to buy to live, but I feel no one is helping me achieve that – so I’m doing what I need to get on the ladder. I wanted to get somewhere with a big student population so that tenants would be easy to find. I don’t make a lot of money but I knew that when I set out. I want it as a long-term investment,” said Shivi.
It is more difficult to get a buy-to let mortgage if you don’t already own a residential property, but there are a handful of lenders will consider one on this basis. Hotwani went to brokers London & Country and got a 75% LTV two-year-fix through the Clydesdale.
“I would still like to buy to live in London but I feel like no one is helping me to achieve that aim, so I’m doing what I need to do to get on the property ladder,” he said.
Retired GP, Rod Smith, 67, from Reading, Berkshire told the Guardian that he invested in a flat in Highbury, north London, last year with his son, to give him both an investment and a place to live. “He works in the City in insurance but it is impossible for him to afford to buy,” he said.
Also, this year he bought a three-bed semi-detached in Reading with his daughter. “I wanted to get her started,” he explains. “I have owned buy-to-lets in the past and have always found that, as an investment, it has worked well.”
Dr Smith re-mortgaged his own home to fund his latest property investment. Because of his age – most lenders will not advance money which takes people into their 70s – he may have struggled, but the Ipswich building society decided he was a low-risk borrower and agreed.
Katie Vincent, a social media manager, and her partner, wanted a bigger place to live in, but instead decided to go for a buy to let because they could not find a suitable property to buy for themselves.
“After a lengthy search and a few false starts we realised our ideal home just wasn’t out there,” says Vincent. “With the money sitting in the bank earning next to nothing, we decided to use the money towards a buy-to-let property so that we wouldn’t be tempted to dip in to the cash.”
They have now completed on a large two-bedroom terrace in Stanley, Co Durham, and they believe they will easily be able to let it.
“Having previously seen these houses on the market for around £30,000 more than they are now, we felt it was a good time to buy,” she says. “If the struggle for first-time buyers continues, rental properties like ours will be in higher demand.”
Yet others are looking to buy to let the supplement their pension and some experts are expecting another boost to the buy-to-let market over the coming months as pension freedoms that were introduced in April this year enable pensioners to release cash funds. The new rules allow anyone over 55 to access their full pension pot instead of having to take out an annuity.
Numerous surveys of over-55s are showing there’s a lot of interest in investing pension money in property, although the Bank of England said recently that most pensioners would find it difficult to obtain a buy-to-let mortgage.
It is perhaps understandable that the BoE is getting concerned, as the various scenarios which favour buy to let investment seem endless, and could lead to excessive debt in the form of buy to let loans. But buy to let have proved a life saver to those unable to afford to buy in the most expensive areas, giving those willing to take the initiative, a route onto the housing ladder.
Generation Rent Includes Many Landlords – http://t.co/rdDZ6xkGDO
— LandlordZONE® (@LandlordZONE) July 31, 2015