Buy-to-let boom ‘unlikely’

The buy-to-let market is unlikely to see a boom on the back of falling house prices and low first time buyer demand, according to a group of leading economic commentators.

Speaking at a debate today, senior figures, including the Council of Mortgage Lenders’ director general Michael Coogan, and Nationwide chief economist Fionnuala Earley, say they do not expect the market to shrink, but they also believe a boom is out of the question.

“I think a lot of people will seek rented accommodation while they save the money to buy, but I don’t like to think of the market in terms of boom and bust and I expect it to remain steady,” says Coogan.

David Miles, chief economist at Morgan Stanley, agrees: “I think net new demand is unlikely to increase, despite the prospect of attractive yields, because capital is likely to depreciate in the short term. However, it’s too costly for those already in the market to get out, so I think most current investments will remain.”

Earley also believes property presents a good, long-term investment opportunity, but does not expect a huge boom in investment over the coming years.

However, Evan Davis, economics editor for the BBC, believes rental incomes will remain stable, but also questioned the longer-term demand for rented property.

“Demographic change has underpinned demand for rented property in the UK,” he says. “However, the pound has been depreciating against the zloty and other Eastern European currencies, which might reduce the economic incentives for recent migrants to remain in the UK.

“I’ve already heard anecdotal evidence of Poles buying one way coach tickets back to Poland and we may be looking at a cyclical phenomenon in terms of immigration, which will lessen demand for rented accommodation.”

All panellists at the debate agreed that, in the short-term, rents will rise, pushing up yields, but they acknowledge that rents cannot rise to levels that are unaffordable and this will keep increases at a moderate level.

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