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Long term investors continue to dominate Buy to Let

publication date: Jun 20, 2007
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Buy to Let investors borrow an average of 73% of the purchase price for their property investments, while a sizeable minority, one in eight, borrow less than half. Over 40% of these investors buy properties that are over 50 years old and less than a fi fth buy new build. On average, investors expect to keep their properties for nearly 17 years.

These fi gures were published in the quarterly ARLA Review & Index for Residential Investment. The Review is the largest independent survey of the private rented sector taken from 525 letting agents and 259 investment landlords during March.

The quarter’s results are again seen as showing that the Buy to Let sector is dominated by the long term, mature investor.

Publication of the Review is supported by the ARLA Group of Buy to Let Mortgage Lenders, Bank of Ireland, Cheltenham & Gloucester, GMAC-RFC, Mortgage Express, NatWest, and Paragon Mortgages. The Group represents well over 50% of the Buy to Let mortgage market and it covers the many different strands that make up the sector, from newcomer to small portfolio holders to professional investment landlords.

Across the board, investment landlords report that tenants stay in their properties for an average of 18 months. This is irrespective of the length of the initial term agreed. 40% said that tenants stay for more than 18 months. A further fi fth reported their tenants as staying for more than two years and only a third reported stays of less than a year. Nearly a third of these tenants are aged between 23 and 30, a quarter is between 31 and 40 and nearly another third are over 40. One in eight is under 23.

Commented Adrian Turner, Chief Executive of ARLA, “Increasingly, renting is seen as a long term option across all age groups. We believe that this is a refl ection of a competitive rental market, increasingly high standards of housing that meet aspirations and a desire for fl exibility.”

The ARLA Index shows that the annual rates of return for a cash purchase of residential rental property average 11.18%. For geared investments the average is 21.68%. These returns include both rental income and capital appreciation. There is only a marginal difference reported in the returns from flats and houses.

The Review shows that the proportion of landlords with Houses in Multiple Occupation, HMOs, continues to fall. In the last quarter, the number of landlords reporting they had any HMOs at all fell from 54% to 49%.

Those leaving the HMO market cite bureaucracy, new rules, costs of alterations and licence fees as the prime reasons for their departure.

However, in the mainstream, it is clear that the vast majority of residential landlords are in Buy to Let for the long term. Nearly two thirds, 65%, claim they expect to hold on to their property investments for more than 10 years. Less than 2% see Buy to Let as a short term speculation in property by holding their investments for under two years.

Even if house prices were to fall, the great majority, 86%, of all investment landlords say they will not sell. 12% are unsure and a very small minority of 2.3% said that will sell in the event of falling house prices. Instead, nearly six out of ten respondents expect to buy more residential investment property over the next twelve months.

More than a third of these landlords are aged between 46 and 55. Almost a third more are between 36 and 45. The average age of all Buy to Let landlords responding to the ARLA survey this quarter is 46.

Said Adrian Turner, “Once again, our quarterly surveys show that the market for residential investment property is dominated by long term, mature buyers whose tenants are also happy to stay for the long term. This augers well for the private rented sector and this is what Buy to Let is all about.”

You can download the full ARLA Review & Index Q1 2007 from the ARLA website: