2007 set to be another busy year for landlords and intermediaries

After a very successful 2006, residential property investors and the intermediaries who advise them are expected to enjoy another busy year in 2007.

The buy-to-let market saw strong and growing activity throughout 2006, as investors benefited from a good uplift in capital values, stable rental yields and a consistently positive economic backdrop. As a result, investor activity has continued to be strong, with intermediaries arranging a growing number of mortgages for their buy-to-let customers.

John Heron, managing director of Paragon Mortgages, comments: “As existing investors purchase additional properties, new landlords enter the market and some borrowers remortgage their portfolios, we’ve seen excellent growth in our buy-to-let lending business, which was 82% higher in our 2006 financial year than in 2005.”

“Intermediaries have also been enjoying good business from buy-to-let. With 14% of intermediaries’ activity representing buy-to-let business, this is an important source of earnings for them and will remain so in 2007.”

Indeed, prospects for further growth in the market remain excellent. Recent government statistics provide further evidence that the private rented sector will continue to grow apace.

According to the HM Treasury estimates, new immigration will continue at an annual rate of between 185,000 and 190,000 over the next three years, higher than previously expected.

John Heron says: “Inward migration is a key driver of tenant demand. We know that less than 20% of migrants become home owners within five years, which means that a net influx of people, particularly from Central and Eastern Europe, will have a direct impact on the private rented sector.”

“Indeed, recent research of our landlords indicates that almost a third of them believe that tenant demand is either growing or booming, with almost all the remainder saying it is stable. In response to this demand, they expect to grow their portfolios in numerical terms by 6% over the next 12 months.”

In this favourable environment and with many workers in financial services and other sectors due to receive record year end bonuses, a significant amount of new money is expected to flow into the private rented sector in the first quarter of the year.

John Heron says: “Based on our latest Buy-to-Let Index, the average buy-to-let investor made over £7,700 in 2006 just by owning a rental property, in capital appreciation alone. On top of that, he has generated almost £10,000 in rental income, an excellent total return on investment of £17,700 or 11.4% over the 12 month period.”

“With such attractive returns being made by residential property investors, it should be no surprise that many employees who receive end of year bonuses will channel some of that money into buy-to-let. In our experience, a significant number of financial services workers , who are among the most sophisticated investors around, are established buy-to-let investors and will use part of their bonuses to increase their involvement.”

City bonuses for 2006 are forecast to reach an aggregate £17.6 billion, on top of which workers in many other business areas have received or will receive generous payouts in the early part of 2007.

“Along with clearing credit card debts, buying a new car and booking a lavish holiday, bricks and mortar are one of the most common ways of spending a bonus. Some people move house, some have an extension built or invest in home improvements, but a significant portion finds its way into buy-to-let.”

“With this combination of positive factors, the signs are that 2007 will be another bumper year for the buy-to-let sector. We will continue to work closely with our intermediary partners to offer the best products and solutions tailored to the needs of our customers.”