Buy to let needs to switch to a business model similar to student letting to meet the growing demand for homes, according to a new report.
The student market is partly serviced by corporate investors earning high yields, while a lack of institutional investors could leave a massive £150 billion gap in housing over the next five years, says research released by property consultants Savills and online homes portal Rightmove.
They blame low yields and high property values for discouraging corporate and institutional funds from putting cash in to homes because they can source higher returns in other markets.
Demands for higher deposits are also stopping buyers from purchasing their own homes.
“Low yields have been the biggest barrier to much-needed long-term investment,” said Lucian Cook, director of Savills research. “As yields move out, there are early signs of changing investor behavior.
“We expect a 23% increase in the number of private rented households, which is about 1.1 million extra homes. That’s an idea of the scale of opportunity open for institutional investment.”
In detail, researchers reckon the UK needs to spend £200 billion on new homes over the next five years, but predicts buy to let investors will only meet 25% of the target, leaving a £150 billion hole to be plugged.
One answer, says the report, is for builders to offer investor friendly developments that are easy to manage and come with bulk-buy discounts of up to 25% to improve yields.
The report also forecasts a 20% surge in rents over the next five years, as increasing demand for fewer properties fuels the buy to let market.
Around 4.8 million privately rented homes already earn £48 billion of rental income a year, says the report, which will rise to £70 billion by 2016 if the predictions prove correct.
