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News: Buy-to-let market untapped by institutions

The buy-to-let market in the UK has hit record levels, with current figures revealing a huge amount of investment potential for the institutional market, according to the latest research from CB Richard Ellis and Hamptons International.

Activity in the private rental sector peaked at the end of last year with 333,300 transactions having been conducted over the course of 2006. In contrast, the number of first time buyer mortgages fell to a record low of 358,100 in 2004 and has remaining muted ever since.

With the private rental sector now equating to approximately 10%, or £400 billion, of the total UK housing stock, CB Richard Ellis and Hamptons International have identified a rapidly growing market in which the major institutions are significantly under-represented.

Jennet Siebrits, head of residential research at CB Richard Ellis and Hamptons International, explained: “Institutions have very little position in the buy-to-let sector, owning less that 5% of this enormous £400 billion market.”

“This means that there is still a huge amount of untapped investment potential in the private rental sector, and current market trends indicate that the UK seems to be waking up to what is a huge growth area.”

Recently released figures for the second half of 2006 reveal 177,800 advances in the buy-to-let sector. This is a 36% rise over the same period in 2005 and 17% up from the first half of 2006. The establishment of a rapidly growing rental market among potential first time buyers points towards an important division in the housing market, opening up a number of opportunities for institutional investors to exploit the strength of market conditions.

Since 1996, when an average first time home cost £43,000, the sector has seen a 230% price rise in comparison to a 210% increase across the market as a whole. With the price of first time properties now reaching £142,000, renting is a cheaper option for many segments of the population and provides an increasingly popular stepping stone between leaving home and purchasing a first-time property.

Based on current market conditions, which predict an average 7% increase in UK house prices over the coming year, CB Richard Ellis and Hamptons International are confident that demand in this sector will remain high.

“The growth of the private rental sector has been vital in supporting the wider housing market, where first-time buyers are an essential component in supporting the lower tiers,” Jennet Siebrits said. “As first time home ownership falls, the wider market will continue to be supported by the strength of investment demand and steady economy in 2007. 

“As such, the current robust market conditions are likely to continue well into the first half of this year, with immense opportunities for institutions to make a mark in a currently under-exploited sector,” Jennet Siebrits added.

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