Fears that a thriving equity market and a drop-off in immigration from other European Union countries may bring about a downturn in the buy-to-let sector were dismissed today in a report published by UCB Home Loans, the specialist lender of Nationwide.
In the latest of its six-monthly reports on buy-to-let, the lender says that immigration from other EU countries, which has given significant support to the buy-to-let sector in some parts of the country by providing a ready supply of new tenants, is unlikely, as some have predicted, to decline over the next few years.
UCB Home Loans also says that the revival which the equities market has experienced over the past 18 months does not present a threat to investment in buy-to-let, as the two markets carry very different profiles in terms of risk and liquidity.
Immigration
According to the government's Accession Monitoring Report which was published in August, 427,000 workers from Eastern Europe registered to work in the UK between May 2004 and June 2006. When the number of self-employed is added, the true figure is believed to be closer to 600,000.
"Most of these people are renting and, in some parts of the country, they form an important part of the rental community for buy-to-let properties. This has been particularly beneficial for landlords in these areas, as it has helped to keep void periods to a minimum whilst maintaining rents at a reasonable level,"
said Keith Astill, managing director at UCB Home Loans.
Recent government restrictions on immigration from Bulgaria and Romania, which join the EU next year, coupled with a drop-off in the number of workers coming from Poland, could lead to a downturn in the buy-to-let sector in areas where large numbers of foreign workers are concentrated. However, UCB Home Loans says that this scenario is extremely unlikely.
"Young foreign workers have provided substantial support to the UK economy over the past couple of years and, as net tax contributors, they take little back in the way of support or benefits," said Keith Astill
"If the number of people coming to the UK does ever begin to fall off, it is likely the government will alter regulations to enable workers from other European Union countries to take their place," he said.
Equities
In 2002, equity prices fell by 23.7%, whilst house prices grew by 25.3%. The slow recovery in equity markets experienced since the downturn has been regarded as one of the factors contributing to the rapid expansion of the buy-to-let sector, with some seeing investments in bricks and mortar as having greater long- term benefits than putting money into shares.
However, since April 2005, equity prices have been growing faster than those of houses. In the past year to October 2006, Nationwide figures show that the average house price increased by 8.0%, whilst equity prices grew by 14.7%. This reversal is being seen in some quarters as an indication that investment may now flow back towards the stock market in preference to the buy-to-let sector.
"If equities continue to outperform property over the next couple of years, I would not be surprised if this has a slight downward effect on buy-to-let purchases, but I think this would be much smaller than some might expect, as professional landlords are unlikely to pull back," said Keith Astill.
"Equities are very liquid investments and decisions can be taken at very short notice on whether you want to buy or sell. This contrasts with the buy-to-let market, where purchases are generally made with a ten or fifteen year outlook for returns.
"Also, it is the relatively easy access to funding, providing you have the minimum deposit and are able to cover fees, coupled with the UK's fondness for investing in property that is one of the main factors behind the growth of the buy-to-let sector."
