Buy to Let Market in 2017 Has the Bubble burst?
Buy to Let Market, Has the bubble burst? or will we see a swift recovery in the Buy to Let property market
By: buy to let market
The tax changes implemented by the previous Chancellor are still feeding through and the result has been a fall away in activity in the Buy to Let market.
The total number of Buy to Let mortgages in play has fallen and the number being raised is significantly below last year. Regardless of Brexit, or the recent general election (for some reason commentators go out of their way to link the housing market to these factors) the key issue affecting the market appears to be financial, The fall away in activity results from a reduction in Buy to Let returns and this factor will continue to affect the market during 2017.
A high proportion of Buy to Let activity has always been concentrated in the Greater London area. The impact of the slow down in Buy to Lets can therefore be seen in the House price falls currently being seen in the Greater London area according to the recent surveys with month on month declines during the first three months of 2017.
In fact it seems that all of the market indicators and statistics appear to have become negative during 2017.
So Has the bubble burst and will we see a continuing decline in Buy to Let purchases?
Well as always, in my opinion, once you look at a little deeper the current statistics may be a little misleading and the Buy to Let market may just be resting.
The ONS statistics show that overall House prices continue to rise across the country as a whole on a an annula basis. In the year to April 2017 a 5.6% increase was seen with the average house price increasing by £12,000. The regional variation shows an expected pattern with house price growth in London lagging behind all bar 2 other regions.
Rent increased by only 1.6% and this shows that the impact of the Tax changes has been to some extent absorbed by Landlords and not passed on directly to tenants. The figures also show that the overall housing market is seeing an increase in First time buyer purchases in no small part due to the availability of Help to Buy assistance. This no doubt will be seen as a positive tick for the actions taken by the Government to slow down the growth in the Buy to Let market. Given that currently the Help to Buy scheme is due to end in 2019, then 2018 could see a surge in first time buyer purchases. These purchases are often of the type of property sought by Buy to Let landlords and so the level of demand for these properties may yet increase. As it does then no doubt so will House prices.
As well,given that during the same period last year the Buy to Let market was surging due to the imminent impact of the Tax changes it would seem likely that the year on year figures may start to improve from about now and onwards.
Due to the likely rise in property prices and given low interest rates, and economic uncertainty over increasing inflation, then property whether as a Buy to Let or otherwise continues to look a safe investment. In fact recent research indicates that over the next 10 years property prices will continue to rise faster than inflation.This research led to news headlines stating that property prices continue to beat inflation. As such for many people property represents a safe place to hold savings and protect them from being eroded by inflation.
As well as capital appreciation due to property price rises, the fact is that property can also offer a return on these savings. It may be a reduced return when compared to 2 years ago of course however it is still likely to be higher though than the rate of return offered by other traditional saving routes. It would take a considerable rise in interest rates to change this situation.
So as a hedge against inflation, and a source of better than average returns the Buy to Let investment still stands out among other potential investments.
In fact just on the bigger economic picture it seems that the market must continue to grow. Simply put the demand for housing will continue to outstrip current supply of housing for the next 10 years. To change this situation we would have to see the greatest surge in house building for 20 years and to be honest that is highly unlikely.
Alongside this inflation is rising, and no doubt as a result of this we will start to see wage inflation.
These two factors alone will lead to property price increases and no doubt to increases in the rents achievable by Landlords.
For all of these reasons I believe that although the Buy to Let market may have stalled, the bubble has not burst and we will see recovery and further growth in the future.