1 in 5 UK homes owned by landlords

The estimated value of PRS property is now almost £1 trillion, notes Paragon Mortgages. As a growing number of people are unable to afford a home, rental accommodation continues to be the solution for an increasingly diverse range of people. One in four rental households are now couples with no children, while one in five are families – up from one in six just four years ago.Almost one in three tenants, though, are living in one-person households. Indeed, while terrace houses continue to account for the largest percentage of rental stock – 34 per cent, up from 28 per cent in 1996, when buy-to-let lending first began – there are now significantly more purpose built flats.

One-bedroom properties are also the strongest option for landlords too. New figures from LendInvest figures show that average rental yields for one bedroom buy-to-let properties in the UK far outstrip those for larger (three bedroom) properties. One bedroom properties earned investors average rental yields of 5.9 per cent p.a., ahead of 5.2 per cent from two bedroom properties and 4.6 per cent from three bedroom properties.

“We have for years endeavoured to present the best of the UK’s one bedroom buy-to-let investments to our clients, rather than more substantial three and four bedroom properties, as our experience and knowledge of the sector had shown us that those were the properties likely to generate the most impressive returns,” comments Property Frontiers Chief Executive Ray Withers.

“We have also found that city centre studio apartments offer excellent returns and both these and one bedroom apartments have proven particularly popular with investors looking to diversify their portfolios with a range of high yielding properties in key UK cities.”

Regardless of the properties being bought to let, though, confidence in the sector is high. In 2013, Savills forecast that the PRS would grow by one million households over the next five years.

Last month, the Bank of England requested powers over buy-to-let lending to limit risky practices and stabilise the UK housing market. While the Treasury has launched a consultation over the Bank’s powers over residential lending, though, it has postponed the request for the buy-to-let sector until next year, when the much-mooted base rate rise is expected, as well as the general election.

Landlords, meanwhile, are enjoying highly favourable conditions, as lenders prepare for the rate hike. Competition is driving buy-to-let lenders to cut their charges and fees, as well as to offer longer-term fixed rates, explains Mortgages for Business.

“A burst of competition in the buy to let mortgage market is facilitating a greater choice between different mortgages than ever before,” says Managing Director David Whittaker.

“This is a vote of confidence in landlords, at a time when lenders remain under serious pressure to maintain the safest possible loan books.”

“Longer-term fixed rates are the best option for landlords looking to protect their future income and minimise any risk associated with interest rate rises, and there are now many more of these options available,” he adds.

Indeed, almost one in five of all available buy to let mortgage products are now five year fixed rate deals. The effect of fees and charges on buy to let mortgages, meanwhile, has raised the overall cost by just 0.54 per cent pa in Q3 2014, significantly lower than the average of 0.67 per cent extra seen at the start of 2013 and down from 0.58 per cent in Q2 2014.

With a wider range of mortgage products available at a lower cost, the buy-to-let boom is set to continue, with lending to landlords expected to top £25 billion in 2014.

“Meanwhile, the wider benefits of more buy to let funding are being felt by everyone in the private rented sector,” continues Whittaker, “including tenants who have seen a growing supply of homes to let this year.”

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