12:47 PM, 27th March 2012, About 10 years ago
Buy to let entrepreneurs can only finance around a quarter of the £200 billion investment needed in property over the next five years – leaving a massive shortfall in homes, according to new research.
Unless institutional investors, like pension funds, fill the breach, the UK will not have enough homes to meet demand regardless of government attempts to try to kick-start the market by relaxing planning rules and underwriting mortgages with the NewBuy scheme.
The report – from international property firm Savills and online homes portal Rightmove – blames low yields and high prices for the lack of investment.
As a comparison, researchers pointed out that investment funds own 5.5 million apartments in the US, while the number is just above zero in the UK because the returns are so unattractive.
“Low yields have been the biggest barrier to much-needed long-term investment,” said Lucian Cook, director of Savills research. “As yields move out, there are early signs of changing investor behavior.”
The number of renters has soared as mortgage lenders have tightened up borrowing by demanding larger deposits.
A squeeze on finance has also put a brake on buy to let borrowing, with much of the market activity generated by remortgages rather than buying more homes.
The report forecasts a massive 20% increase in rents over the next five years, as the number of rental properties is soaked up by increasing demand.
Around 4.8 million privately rented homes generate £48 billion of rental income a year, says the report, which will soar to £70 billion by 2016 if the predictions prove correct.
“We expect a 23% increase in the number of private rented households, which is about 1.1 million extra homes,” said Cook. “That’s an idea of the scale of opportunity for institutional investment.”
The report also urges developers to develop for investors rather than consumers by making properties easier to manage while offering higher yields, which means prices need to come down for bulk buyers.