REPORT DISMISSES NEGATIVE EFFECTS OF IMMIGRATION AND EQUITIES ON BUY-TO-LET MARKET

Fears that a thriving equity market and a drop-off in immigration from other European
Union countries may bring about a downturn in the buy-to-let sector were dismissed
today in a report published by a specialist lender that Easy4life loans & Mortgages
deals with on a regular basis.

In the latest of its six-monthly reports on buy-to-let, the lender says that immigration
from other EU countries, which has given significant support to the buy-to-let sector in
some parts of the country by providing a ready supply of new tenants, is unlikely, as
some have predicted, to decline over the next few years.

The lender also says that the revival which the equities market has experienced
over the past 18 months does not present a threat to investment in buy-to-let, as the
two markets carry very different profiles in terms of risk and liquidity.


Immigration

According to the government’s Accession Monitoring Report which was published in
August, 427,000 workers from Eastern Europe registered to work in the UK between
May 2004 and June 2006. When the number of self-employed is added, the true figure
is believed to be closer to 600,000.
The Lender states “Most of these people are renting and, in some parts of the country,
they form an important part of the rental community for buy-to-let properties. This has
been particularly beneficial for landlords in these areas, as it has helped to keep void
periods to a minimum whilst maintaining rents at a reasonable level,”
Recent government restrictions on immigration from Bulgaria and Romania, which join
the EU next year, coupled with a drop-off in the number of workers coming from
Poland, could lead to a downturn in the buy-to-let sector in areas where large numbers
of foreign workers are concentrated. However, the Lender does state that this
scenario is extremely unlikely.
“Young foreign workers have provided substantial support to the UK economy over the
past couple of years and, as net tax contributors, they take little back in the way of
support or benefits,”
“If the number of people coming to the UK does ever begin to fall off, it is likely the
government will alter regulations to enable workers from other European Union
countries to take their place”.


Equities

In 2002, equity prices fell by 23.7%, whilst house prices grew by 25.3%. The slow
recovery in equity markets experienced since the downturn has been regarded as one
of the factors contributing to the rapid expansion of the buy-to-let sector, with some
seeing investments in bricks and mortar as having greater long-term benefits than
putting money into shares.
However, since April 2005, equity prices have been growing faster than those of
houses. In the past year to October 2006, Nationwide figures show that the average
house price increased by 8.0%, whilst equity prices grew by 14.7%. This reversal is
being seen in some quarters as an indication that investment may now flow back
towards the stock market in preference to the buy-to-let sector.
The lender goes on to state “If equities continue to outperform property over
the next couple of years, It would not be surprised if this has a slight downward effect
on buy-to-let purchases, but they think this would be much smaller than some might
expect, as professional landlords are unlikely to pull back,”
“Equities are very liquid investments and decisions can be taken at very short notice
on whether you want to buy or sell. This contrasts with the buy-to-let market, where
purchases are generally made with a ten or fifteen year outlook for returns.
“Also, it is the relatively easy access to funding, providing you have the minimum
deposit and are able to cover fees, coupled with the UK’s fondness for investing in
property that is one of the main factors behind the growth of the buy-to-let sector.
The Lender further points out that share prices have only just returned to the level
they were at in 2000, having previously reached a low in 2003. So, whilst the current
rise in the fortunes of the equity sector may encourage some investors to direct future
investments into equities rather than housing, it is likely that many investors will need
to see a sustained period of positive growth before feeling confident enough to switch
their allegiances.