Demographics brings new breed of British landlord

LONDON, Feb 5: Rising immigration, a growing student population and high home prices have given rise to a new breed of landlord in Britain: young, professionals whose main objective is building a nest egg for retirement.

Since buy-to-let mortgages were introduced a decade ago, giving landlords access to more attractive interest rates, the number of such mortgages has risen to 800,000. New lending is expected to have risen to more than 35 billion pounds last year, up 40 per cent from 2005.

Jane Knight, a 34-year-old professional, is typical of thousands of young investors who have bought investment property.

''It's for our retirement, that's really how we're looking at it,'' she Knight, who with her partner bought a one-bedroom flat in Gravesend, southeast England, in 2002, which they have let to the same tenant ever since.

''We also see it as a safety net -- we could sell it if we lost our jobs or to help with this house,'' she said, referring to the home the couple owns in Bromley, 20 miles from their rented property.

Knight is similar to many other buy-to-let landlords.

Almost half are under 40, according to a study last year by Michael Ball, a professor of property economics at the University of Reading. Most landlords own one or two dwellings and are investing for the long-term, he said.

Some 38 per cent of buy-to-let borrowers in a survey by mortgage lender Bradford&Bingley last year said they had invested to provide for their retirement and a further 34 percent invested for capital growth. Only 8 per cent had bought for the regular rental income.

Behind the growth is a wave of immigrants in need of homes to rent, a larger number of students as more people take up further education, and rising prices that have put homes out of reach for many would-be first-time buyers.

HERE TO STAY

Demand for housing is so great that it will attract new landlords again this year, despite three interest rate rises in six months that have lifted rates to 5.25 per cent and threatened to put a damper on housing prices.

Bradford&Bingley Britain's biggest buy-to-let mortgage provider with a 20 percent market share, has heard warnings about a market collapse regularly and said demographic trends support optimism. ''We believe the buy-to-let market is strong, stable, robust and actually has quite a good future,'' said Gus Park, head of buy-to-let at the lender.

''If interest rates went up to 8 per cent and rents didn't follow there might be problems,'' said Mark Stevens, also of Bradford&Bingley. ''But where we are at the moment, we're not concerned.'' Other factors supporting the trend are the shrinking size of the average British household due to divorce, later marriage or other lifestyle choices and, perhaps most significant, an under-mortgaged private rental sector, according to Bradford&Bingley's Park.

Private rentals account for just over 10 per cent of the British housing market, not much changed from its traditional share. But within the segment, buy-to-let investors have taken up the slack where large property companies and institutions have taken a profit and left, and that trend will continue, Park predicted.

Buy-to-let lending now totals over 90 billion pounds and the sector accounted for a record 11 per cent of new mortgages in the first half of last year, up from 4 per cent just five years earlier, according to the Council of Mortgage Lending.

Potential buyers should tread carefully and be wary of local bubbles, however, said Justin Urquhart Stewart of 7 Investment Management, which advises clients on personal investment planning.

Overdevelopment has already been seen in several pockets, such as Southampton, Edinburgh and west London in recent years.

''It's still a decent investment but you need to avoid the overdeveloped areas and look to try and buy on weakness.

Knight, who is on a fixed mortgage rate until 2010, is sitting pretty. She said rental income provides some monthly revenue, but her main aim is to have a nest egg, without taking up too much time.

''We could also use some of the equity in it to buy another property, but that would probably start eating into our time, and at the moment it's as if we can almost forget about it,'' Knight said.

REUTERS