William Jordan Blog

Tuesday 8th May 2012

News of the ‘double dip’ recession has thrown a heavy stone into the buy-to-let puddle.

The fact that this news coincided with mortgage lenders beginning to put the squeeze on borrowers has increased the size of the ripples.

So let’s take a look at where that leaves the rental sector.

It’s fair to say that in broad terms we have been in a reasonably balanced place. Demand has been slowly outstripping supply, with the consequent upward pressure on rents, but with so much local flexibility in the vastly fragmented ownership pattern, adjustments and realignments have been happening spontaneously. 

Put another way, in areas where demand has been strong, landlords have been quick to respond by making more properties available.

With millions of people struggling to make ends meet already, and high unemployment, more repossessions will certainly follow. Meanwhile, lending restrictions are putting home ownership beyond the means of millions more.

The repossessed homes will therefore be very difficult to move at present market prices, unless the banks sell to the buy-to-rent sector at knockdown prices.

Cash-rich investors will certainly be able to bag a bargain. We are in similar times to the early nineties, the only difference being that the residential lettings sector was in its infancy then and it is now a mature market. 

During the property market boom, there were three reasons for first-time landlords joining the party. Galloping valuations appeared to make it a ‘no lose’ proposition, lenders were falling over themselves to throw money at bricks and mortar, and demand was steady.

For a new buy-to-let landlord nowadays, the going is a lot tougher. Bargains are there for the taking but deposits are very high, and even with low interest rates, most lenders are showing extreme reluctance to provide funds.

For astute investors with surplus funds, on the other hand, there’s an opportunity to have a field day.

There is an abundance of keenly-priced property hitting the market at auction as lenders divest themselves of first and second charges. Most of these properties need very little capital expenditure to convert them into rental assets.

And further down the track, in two, three or four years, the value of residential properties will begin to rise again.

If ever there was a time to invest in buy-to-let, it’s now. 

* William Jordan is managing director of Jordan’s, a lettings and property management agent