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December 7, 2007

The future of buy-to-let investment

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by Brian Turner

The future of buy-to-let investment

Today’s opinion piece comes from Neil Young, CEO of Young Group Property Portfolio Managers:

This week’s fall in interest rates has been widely predicted due to the disparity between base rate and LIBOR, which has impacted business costs and consumer loans/mortgages. The reduction in base rate represents a steadying hand that further stabilises the economy, the broad economic indicators of which remain robust.

Despite the media hype, the broader economic indicators* remain strong: unemployment levels are low and falling, inflation is 0.1% within target, GDP growth is healthy, investment is up to 5.3%, productivity is rising and the base rate is stable. People who are well informed will draw their own conclusions on the state of the economy.

People need to remember when investing – whether in a bull or bear market – that it is buying well that ensures a good investment. This has been true in the first half of 2007 when the market was strong and is still true in the last quarter when people are being more cautious.

The world has not come to an end; funding has become more difficult to come by. Economic indicators are still positive, eg low inflation, low and falling unemployment, employment rising, growth forecast above 2%, productivity up and further cuts in the base rate are forecast. Buy-to-let property is still a solid medium to long term investment class, providing people they do their research and look at the facts and fundamentals of each opportunity, without being swayed by marketing spin or doom-mongering press reports.

Moving into 2008, mortgage funding will be more difficult to come by as lenders, rightly, tighten their lending criteria. However, a purchaser with a good credit history and a realistically priced property will still find good mortgage products from lenders.

Although difficult for those looking to secure funds for property purchases, the shake out in the mortgage market will result in a stronger and more robust market. The end of 2007 is already seeing sense coming back to the market.

According to the Young Index of investor sentiment, December 2007, 95% of investors expect the interest rate to be at 5.75% or below at the end of 2008. 60% of investors predict that it will stand at between 5.0% and 5.25% at the end of next year. In March this year, the Young Index of investor sentiment correctly predicted that at the end of 2007 the base rate would be 5.50%. Investors clearly envisage that interest rates will remain stable over the medium term.”

Sentiment within the buy-to-let market remains strong. 93% of investors intend to hold their property investments during 2008. But when it comes to increasing property investment holdings, it is clear that confidence in concentrated within the London market. 54% intend to buy additional investment properties within London, compared to just 10% who intend to invest in more UK property outside of the capital.

The picture is the same from a price point of view; 82% of investors believe that property values in London will rise or remain static, compared to UK property outside of the capital where just 37% expect to see prices rise or remain static.

* Source: latest HM Treasury figures

GROWTH (GDP): Up 3.3%
EMPLOYMENT: Up 82,000 at 29.1 million
UNEMPLOYMENT: Down 47,000 at 1.66 million
BASE RATE: 5.75% (against 7.0% 20 year long term average)
INFLATION: 2.1% (against 2.0% target)

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