UK and US Face Buy to Let Boom Hand in Hand
We always talk about the special partnership between the UK and US, and we all know that it will scarcely ever be as "special" as it was between Bush and Blair, at least not until sufficient time to have past for us all to have forgotten the lies Blair told during the time that he was being operated from behind by Bush, but that is another article. But one special relationship that we have no such choice in is the special relationship between our economies and housing markets.
Just as the glove puppet metaphor was appropriate above, it is as though the US housing market is operating the UK one, but it is more like string puppetry; pulling it around. The US housing market crashed because of a tsunami of defaults on sub-prime mortgages well and truly burst the bubble of easy credit that was fuelling the boom. The UK banks were as tied up in sub-prime US securities as any bank in the world, and so the contagion soon became a UK problem.
Both saw massive repossession figures, although the US problem was bigger one could argue that proportionately as to the size of the markets, the problems were equally huge. And both saw their banks practically shut up shop to mortgage lending.
Now, the same set of circumstances caused by the crash is fuelling a rental boom in both the US and the UK. Namely, the fact that of the few first time buyers with immaculate enough credit to get a mortgage, even fewer can raise the 10%
(or more) deposit needed to get an affordable rate. Thus, most would-be first time buyers in the US and UK are being forced into the rental market. This, combined with the thousands (millions in the US) of people who have been forced into the rental market by repossession, and on top of the usual demand for rented accommodation, is fuelling unprecedented rental demand in both countries.
According to a recent government survey, US developers can't build fast enough to meet the demand, even though construction is growing rapidly across the nation.
Two-thirds (67%) of developers surveyed last quarter by the National Multifamily Housing Council said c
onstruction activity is underway, with 20% breaking ground on new projects as fast as they can put everything in place. The other 47% reported an increase in pre-construction activities-acquiring land, lining up financing, getting building permits-but not much actual construction yet. Even with all this increased building, 54% of developers still think development is not meeting demand in the US.
In the UK demand is so great that rents are setting records on a weekly and monthly basis. According to the latest buy to let index by LSL Property Services (parent company of Your Move and the Reeds Rains agency network), rents grew in all areas of the UK in September for the first time on record. The index, which was based on a representative sample of 18,000 properties across the UK, recorded rents up 0.7% on average in September, taking the average to £718, surpassing the record high of £713 set just 2 months before.
Rents in London grew by an incredible 5.2% in September. This is obviously great news for those with capital to invest in buy to let properties in either the US or UK (especially with so many repossessed properties to choose from in places like Florida and Atlanta), but one can't help but wonder if the UK rent rises are perhaps storing up more trouble for the future; for example, if people start to get priced out of the rental market we are endanger of the government stepping in and making UK rental law even more pro-tenant. But again, that is another article.
-Overseas Property Mall-