What is the true state of buy to let in the UK?

The media are so hyped up and confused about UK BTL. There are lots of mixed views in the media about the state of the UK BTL Market, the majority stating that it is slowing down. The Association of Residential Letting Agents (ARLA), has just released a six-year analysis of BTL from 2001 to the present day which paints a more realistic picture.

Tony Booth, writer for investment experts Property Secrets believes that the market is merely seeing a state of maturity and can handle the odd hiccup, including increases in interest rates and stagnant property prices.

Tony comments: “The statistics gathered from 500 letting agents and 250 investment landlords, contained in the ARLA analysis, make interesting reading and highlights a number of facts about rental yields, voids, supply and demand and rental levels achievable.”

“The analysis shows a deteriorating return on annual yields over the six years, ending at around 5% for both houses and apartments in all regions by the first quarter of 2007.”

“Annual yields actually haven’t changed dramatically in real terms, since the highest recorded yield was 5.7% in 2003.”

“However, yields vary according to UK regions, so while the figures may prove buy-to-let is just as profitable now as it ever was – it also proves that exploiting the advantages offered by regional disparities can be beneficial.”

All landlords have to allow for at least one month of void period per year, which provides a buffer against the often forlorn hope of full occupancy. The ability to avoid voids depends on local competition, the quality of property being offered and the supply of tenancy.

The statistics provided by the ARLA, show perhaps one of the few good things that have come from rising interest rates, which is that annual voids have decreased slightly over the last six years – from a high of five weeks in 2004 to an average of three and a half weeks this year.

Tony adds: “This is probably almost entirely due to first-time buyers being priced out of the market and turning to renting as the only affordably alternative.”

Data supplied by letting agents and landlords show that the 3rd and 4th quarter of each consecutive year, are when most new tenancies begin.

The statistics seem to suggest that the best opportunity to acquire new tenants for a property is from July to October, when tenants looking for renting accommodation are in the greatest number.

Tony comments: “Unfortunately, the ARLA stats don’t show percentages for the type of tenant taking up new tenancies, which means the figures may by heavily influenced by student-lets.”

The supply and demand situation for buy-to-let investors, has improved dramatically over the years, according the agents and landlords taking part in the ARLA survey.

The statistics suggest over 42 per cent of respondents now believe there are more tenants than properties compared with 27 per cent who believe there are more properties than tenants.

Although landlord surveys are more confident now about receiving the rent they ask for, the vast majority report that the amount of rent for all types of property has stagnated or risen only slightly.

The figures also reflect the increase in competition amongst landlords, particularly within inner-city areas where the owner-occupation of newly built apartments is declining.

Tony adds: “If this trend continues, it will have even greater impact on achievable rent levels in the future, because competing for tenant uptake could become fierce.”

The confidence of buy-to-let letters has dipped slightly over the last three years, but far less than the media sometimes implies.

Almost a third of those surveyed were actually in the process of buying additional property, while 57 per cent intended to add to their portfolio during the year – which suggested BTL investors have faith the market will soon pick up again or are taking advantage of the depressed prices in some regions.

Tony concludes: “The ARLA survey indicates that while the media are happy to whip up a storm – investors in the buy-to-let market are quietly and consistently getting on with the job.”

“Most speculators are in for the long haul and recognise that nothing – absolutely nothing – can compete with the enduring financial benefits of property investment.”

“The buy-to-let bandwagon continues to roll successfully forward, no matter what hurdles and obstacles others persist putting in its way. The buy-to-let bubble hasn’t burst – it’s actually developed a tougher skin, so it can expand that little bit more.”