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News: London lethargy a boost for BTL?

Thu, 29 Nov 07

This week has seen slightly mixed signals over the state of the UK property market, with three different sets of house price figures indicating slightly varying signals about the state of the British housing market...

What has emerged, however, is that London property has ceased to be the boom which echoes through the national figures.

Two property websites, Hometrack and Rightmove, produced figures this week showing an overall downturn in property prices. Hometrack showed a 0.2 per cent fall in prices across the UK in October, following a 0.1 per cent dip the previous month. Rightmove, whose figures covered England and Wales, said prices were down 0.7 per cent.

Today's Land Registry figures for October would most accurately be compared with those of Rightmove, as these also covered the situation in England and Wales. Unlike the earlier surveys, it did not record a fall, with prices up 0.1 per cent to an average of £184,346. This was, however, still down from the 0.4 per cent rise recorded in September.

Regional variations

Perhaps of greater note, however, was the regional variation. While Hometrack and Rightmove pinpointed the midlands as the places where house prices were falling fastest, the Land Registry said London has recorded a 0.6 per cent fall, the first time in ten months it had not seen its house price inflation outstripping the national average.

However, the contrast is only partial. Hometrack, while stating that the east Midlands had the biggest fall at 0.3 per cent, recorded that parts of London had seen greater falls, principally central London at 0.5 per cent. This, of course, has been an area where property inflation in prime property has been particularly high, driven by city bonuses.

The reverse may now be happening, as lower bonuses following the credit crunch reduce investment. David Bexon of property website SmartNewHomes.com, while giving an upbeat prediction of house price inflation in 2008 being as high as four per cent, said London may see a fall due to cautious city buyers keeping their money in their pockets.

As further trend data emerges it may become clearer whether any price decline in the capital is principally the result of lower prime central London property investment or a broader fall across different districts and types of property.

Demand for rental property soaring

The implications of this for the buy-to-let market, however, may be encouraging. Just as recent data has shown that rents are rising as more would-be first-time buyers either avoid the market in a time of uncertainty or feel priced out, the impact of such a trend in London would be an even greater boost.

Figures from the Association of Residential Letting Agents (Arla) suggest just that. Its survey of the buy-to-let sector for the fourth quarter stated that nationally the demand for rented property was at its highest in five years. Futhermore, Arla noted, two out of three letting agents in central London had more demand than there were properties for, while in the south east as a whole 57 per cent report such a shortfall of supply.

Arla described the situation in central London as a "dramatic turnaround", with the supply shortage growing "thirteenfold" over five years. This indicates that the trend is not a completely new one, but the current situation "should come as no surprise", according to Arla's head of operations Ian Potter.

BTL industry in a ‘good position’

He added: "These latest figures confirm that the private rented sector will once again be the safety valve for a housing market worried by the current financial uncertainties and the softening of house prices."

Thus if the situation in London, far from being one of housing boom driven by high buyer demand, becomes one of uncertainty and even decline, the buy-to-let industry could be in an ideal position to make good capital gains as properties are filled and rents rise.

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