ARLA Slams Buy to Let Abuses

Association of Residential Letting Agents

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ARLA Slams Buy to Let Abuses

22nd September 2004

Q3 2004: The ARLA Review & Index of Returns on Residential Investment - 207K

Re-affirming the facts about true Buy to Let, the Association of Residential Letting Agents, ARLA, and the ARLA Panel of Mortgage Lenders believe some of the public are at risk of being sidetracked into property purchases that are improperly linked to Buy to Let.

The ARLA panel of lenders, Birmingham Midshires, GMAC Residential Funding, NatWest Mortgage Services, Paragon Mortgages and The Mortgage Business, represent some 40% of all Buy to Let mortgage lending. ARLA represents 1,500 lettings and residential management offices.

Speaking in London today, (Wednesday September 22), Robert Jordan, President of ARLA said that true Buy to Let is an example of private enterprise fulfilling a social need for choice in housing while also providing a fair return for the landlord. "It is about fair returns and quality accommodation, not get rich quick schemes.

"True Buy to Let has provided a choice and quality of accommodation that is better than ever before, a fact recognised by the Office of the Deputy Prime Minister," he added. "With the aid of Buy to Let, the Private Rented Sector provides flexible housing for a mobile workforce, accommodation for the ever expanding number of students in higher education and a partnership with registered social landlords. All of this is about mature investors supporting the sector for the long term."

Although repeated surveys allow the ARLA Panel to be confident that most investors in residential property invest for the long term, using long-term tenancies, they are seeking to remind the public that many areas of property dealing are being improperly linked to Buy to Let and are abuses of the brand. These include speculative buying off plan, buying in foreign markets and in holiday homes in the UK and abroad.

Said Robert Jordan, "Super house inflation has brought about a secondary market that purports to be Buy to Let and probably uses mortgages from some lenders to fund these activities. These include off-plan buying where the purchaser is speculating on the increase in house prices. Sometimes these propositions include a guaranteed rent but the public should be aware that these guarantees are no more than a delayed discount and no real guarantee of the rent that can be achieved, or that the property can be let at all."

The phrase Buy to Let has also being used to sell holiday homes. Robert Jordan pointed out that the Dalmation and Black Sea coasts are a forest of cranes and new building. "Letting these properties is, at best, a way of subsidising holidays. You may get a let or two but the competition is fierce, so don't bank on it. Holiday homes in the UK are not Buy to Let either, nor are rooms for sale in an hotel," he added.

John Heron, Chairman of the ARLA Buy to Let Panel and Managing Director of Paragon Mortgages, said that new Buy to Let lending looks impressive but it still accounts for only a small proportion of the total Private Rented Sector.

He explained that, according to government, the Private Rented Sector has some two and a half million homes and by the end of 2003 the Council of Mortgage lenders had reported that there were just 400,000 Buy to Let mortgages in place. "This is in a market that is polarised between small scale private investors and professionals. 53% of the investors in the Private Rented Sector own just 3% of the rented housing stock," he said.

Research shows that the small-scale private investors augment other investments by owning between one and five properties. They are less yield driven than professional investors who commonly hold 11.5 properties and for whom Buy to Let is a primary business activity. Both groups see Buy to Let as a long-term strategy.

"In contrast, property speculators buy and sell quickly, are price inflation driven, have no real interest in tenants and should not be given access to Buy to Let mortgages," John Heron added.

Buy to Let lending figures show that arrears are half the level of those experienced with other mortgages, with losses and re-possessions almost non-existent. There is no reason for this to change as, looking to the future, the ARLA Panel believes that Buy to Let has strong defensive qualities in a softer housing market as the need for rented properties expands.

This new initiative to hone the definition of Buy to Let was launched a week before the eighth anniversary of the launch of Buy to Let. It coincides with the publication today (Sept 22) of the third quarter ARLA Review and Index which shows almost a third of all ARLA offices report more tenants than properties, up from 20% three months ago. This 12% swing is seen as an important indicator of a sustained pick-up in new lettings. It is the third quarter to show a reduction in available rental stock.

Q3 2004: The ARLA Review & Index of Returns on Residential Investment - 207K