Is there a buy-to-let bubble brewing
In property you can't escape the word 'bubble'. It's been commandeered as the word to describe any situation in the industry that's about to blow up and tip people over the edge. So far, however, it's largely been reserved for residential sales.
But for all our focus on unsustainable house prices, the plight of first-time buyers, Help to Buy and the unstoppable influx of oversees purchasers, we may have taken our eye off what's brewing in buy-to-let.
Let's look at the evidence. Supply and demand in the residential sector has yet to be addressed and the number of new homes being built - purported to be the key to affordability - has not increased to a point where everyone is able to move to homeowner status. This has a knock-on effect on rental demand, which is so strong that Connells Group says it intends to open no fewer than 75 lettings branches in 2015, coming off the back of 68 new lettings offices in 2014.
Then there's buy-to-let finance. It seems not a day goes past when a new, better buy-to-let product is launched and the criteria borrowers have to meet is relaxing. Paragon Mortgages and the Council of Mortgage Lenders both reported significant uplift in buy-to-let lending in 2014, while Barclays has introduced a new approach to investor lending that permits personal income to be accepted when accessing affordability. There's also a shift towards lending to older borrowers with longer term loan periods as well.
That brings me on to the pension changes planned for April 2015. Some 32% of people aged 45 to 64 with a private pension are considering using some or all of their pension pot to fund a buy-to-let, according to research by Direct Line for Business (DL4B). It's predicted an influx of 'silver' investors could flood the market during 2015 and the effect this may have is unknown.
Throw into the mix rents, which, according to Mortgages for Business, rose across the whole of the UK by 1.7% during 2014; the threat of a mansion tax by some political parties ahead of the general election, (which is driving some high-end buyer towards premium rental properties), and the promise from the Conservative party that, if re-elected, it may impose new controls over the buy-to-let market should there be a risk to financial stability, and you may just have enough ingredients to cook up a lettings bubble.
Some of the indicators above are contradictory; many have been witnessed before while others may move the rental market into unchartered waters. The next few months will be nothing short of interesting but just how long will it be before newspaper front pages report the rental bubble is about to burst
* Simon Duce is the Managing Director of ARPM Outsourced Lettings Support
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