A recent report confirmed that the UK property market is moving more towards rental as opposed to ownership. There has been a significant reduction in ownership levels in recent years and many expect this to continue for the foreseeable future. So, why is the UK seemingly switching to a property rental market as opposed to outright ownership?
There is no doubt that property prices have increased dramatically in the UK over the last 20 or 30 years and there are some areas which are out of the reach of first-time buyers. This opens up various opportunities for buy to let investors who have a ready-made market, those who work in the area but cannot afford to buy, with attractive rental yields. However, let us not fall into the trap of assuming that all parts of the UK are now out of the reach of first-time buyers.
Is it a coincidence that the UK employment market has become more “mobile” over the last 30 years? Many experts have talked about this move for years but it does seem to have come to fruition across the UK. If you need to be relatively mobile to take up employment opportunities, with your existing employer or a new employer, do you really want to invest a significant amount of money in property?
In hindsight, many of those who are now part of the mobile UK employment market will look back over the last 20 years or so and wonder why they did not buy and rent out properties not always required. We have all done it, looked at the house next door which was up for sale 20 years ago and has now increased significantly in value. However, at the time employment was maybe difficult, was there any long-term guarantee of income to cover mortgage payments and, with all due respect, who could have guessed that the UK property market would have been so buoyant?
Investors willing to pay up for property
There is an argument that some investors take a longer term view on property and are willing to pay just that little bit more than domestic buyers looking for an actual home. These are investors who may have a number of buy to let investments and realise that as their financial liabilities reduce they will actually be able to increase rental income (if they choose the area carefully). Whether the recent increase in buy to let related taxes will have an impact in the short to medium term remains to be seen. If rental yields bring in enough money to cover all liabilities, and leave a little extra to bank, would property investors really pull out of this market?
As we touched on above, there are a number of reasons why the UK property market trend has now switched from home ownership to rental. The onset of Brexit will also cause some concern and confusion in the short term until the longer term path becomes clearer – this in turn is likely to see fewer people committing to long-term property purchases. As a consequence, it is difficult to see why the ongoing switch to rental as opposed to ownership will change in the foreseeable future.