The UK buy to let market is alive and kicking with the Daily Mail newspaper today announcing plans for a whole week of focus upon the sector. There have been a number of significant changes in the UK pension market over the last few months and many people are now looking towards property as their “pension” of the future. It will be interesting to see the short to medium flight of money from pension funds to property assets – many of which are not yet allowed to be held directly within pension portfolios.
Sensible approach required
If you take a long-term sensible approach to the buy to let market there is significant potential for long-term growth. This is not necessarily a market which will create a massive return in the short term but continued growth in your portfolio, long-term asset appreciation and, perhaps more importantly, an ever growing dependence upon renting property as opposed to buying has created an interesting environment.
In many ways buying property is a very simple task made difficult by people grasped by fear and greed. If you’re able to acquire a property at a reasonable price with a reasonable rental income, covering your costs and leaving a buffer for unforeseen expenses, if managed correctly this could be a hidden gem. It is those who are influenced by fear and greed who perhaps overstretch their finances, pay more than fair value for a property and act on short-term movements as opposed to long-term trends who hit the headlines – and the buffers!
Do we live in a perfect environment for buy to let?
There is no doubt that the UK property market has seen a significant switch from home ownership to rental. Some of this has been by choice but the vast majority is because many of the more “prestigious” area of the country are priced at a level not within the reach of first-time buyers. There is also the issue of “mobile employment” where people are often asked to work in different parts of the country at relatively short notice. In this situation it would be difficult to justify the purchase of a property if you are unsure where you are going to be in just a few months.
Critics would suggest that the UK government’s promise of up to 300,000 new build properties within the life of the next Parliament might dampen demand for buy to let assets. However, many governments have promised significant increases in new build numbers only to fall by the wayside. Even if the UK government was to deliver on its promise it is highly unlikely that the timescale is viable and within reach.
It seems as though there is renewed appetite for the UK buy to let market which came in for significant criticism post the 2008 economic crash. Many landlords overstretched their finances, overleveraged their positions and when the market turned downwards many of their portfolios came crashing down like a pack of cards. However, a sensible long-term approach to buy to let investment still has significant attractions so long as fear and greed play no more than a minimal role in your investment decisions.
Let your head rule your decisions not your heart!