Definition of Buy To Let. When an individual (or business) buy a house with the intention of renting it out to tenants. The motive for buy to let is to gain a regular income from the rent, plus hope to gain capital gains from increasing house prices

Growth In Buy To Let Sector

In the past decade, the buy to let sector has become a more significant aspect of the UK housing Market. Buy to Let has become more popular because:

• Declining Affordability. With House price to income ratios rising, it is more difficult for first time buyers to get on the property ladder. Therefore, there is increased demand for renting. This creates a market for the buy to let investor.
• Rising House prices. Many buy to let investors have been attracted into the market by the record rise in House prices, which seem to offer great prospects for capital gains
• A New Breed of Investor. An increasing number of individuals are dabbling in the buy to let sector. Often these are not professional investors, but homowners who want to buy a second house as a means to supplement their income / pension.
• Rising House prices enable More ambitious Investors.Rising house prices create capital gains and a positive wealth effect; this enables investors to remortgage and buy more property on the back of rising house prices.

Prospects for Buy To Let

1. UK house prices overvalued and set to fall. ALthough there is a difference of opinion for how much house prices will fall, most experts think house prices will fall for the next two years, leaving buy to let investors with negative equity
2. Lack of Mortgage Finance. The decline in mortgage products is affecting buy to let investors, making it more difficult for them to buy houses. However, the decline in mortgage finance also means more first time buyers are having to rent rather than buy, so this is helping shore up rentable income.
3. Falling House prices may encourage buy to let investors to sell. Falling house prices may give buy to let investors an incentive to sell at the top of the housing market. However, many buy to let investors say they are in it for the long term, and the costs of buying and selling mean it is not worth the hassle.