The inaugural Halifax Annual First Time Buyer Review is now available under embargo 0001 HRS SATURDAY 6TH MARCH 2004. The FTB Review tracks housing affordability, and associated issues specific to those buying their first home. The review is compiled using information sourced from the Council of Mortgage Lenders, the ONS and the Halifax’s own extensive housing statistics database. Halifax is the UK’s largest mortgages and savings provider and also publishes the longest running monthly house price index in the UK.

The inaugural edition of Halifax’s Annual First Time Buyer Review shows that of the 667 main UK postal towns, 531 (80%) were unaffordable for the majority of those buying their first home during the last year.

The press release and the full list of the 667 postal towns can be obtained on request from pressoffice@halifax.co.uk or by telephoning +44 (0)1422 333829.

(Distributed by PR Newswire on behalf of HBOS Group)

Articles such as this highlight this growing problem and raises the question - how will this affect the overall housing market? Some feel that the first time buyer predicament will lead to an overall housing market crash. However we need to keep the bigger picture clearly in mind. Britain, more than anywhere else in Europe, is a nation of property owners. People feel comfortable with property. Yet if first time buyers cannot buy, they still need to live somewhere.

I believe that we are seeing a structural shift in the percentage of people living in rental property. Over the next ten years this percentage will see a sustained increase as first timers continue to rent, buy much later, or perhaps never buy at all. This is much more akin to the situation in Germany and France.

Any excess of rental property will be taken up by this trend and rental demand will continue to drive the hitherto first time buyer end of the property market. So, I for one done agree with the doom and gloom scenario. Those who are now building rental portfolios, making good property choices and furnishing them to a high standard are likely to see continued demand over the long term.

‘We can’t all make a living selling hamburgers to each other,” argued those who bemoaned the decline of manufacturing and the rise of the retail sector in the 1980s. Neither, it turns out, can we all make a living renting out flats to each other. Ever since the dotcom bubble burst in 2000, buy-to-let has been the favoured vehicle of private investors. In four years, many have doubled their capital. Moreover, in contrast to stock market investments, it is easy to “gear” property developments: that is to say, build an empire on borrowed money. It is not uncommon to hear of individuals who have bought 20 buy-to-lets, financed with �2 million worth of borrowing. Such a portfolio is only sustainable if the rental income covers the mortgage repayments. Should it fail to do so, such investors face not just negative equity, but ruin.

Two reports published by leading estate agents last week show how perilously close some investors must be to this fate. Rents in central London, according to Knight Frank, fell by 3.9 per cent last year, following falls of 10.4 per cent in 2002. This has brought the average gross rental yield on a Central London property down to only five per cent. The average net yield, after expenses, is just 3.25 per cent. A year ago, it was possible to take out a fixed-rate mortgage at a similar interest rate and to cover mortgage repayments with rental income. As the cheapest mortgages are now well over four per cent new buy-to-let investors must subsidise their mortgages with other income.

Worse lies ahead. Not only are mortgage rates likely to rise by another three-quarters of a percentage point by the year-end, the stock of rental property is rising at such an alarming rate that investors will do well to find tenants at all. According to Hamptons International, the number of available rental properties is 50 per cent up on a year ago. The company sees the first signs of significant numbers of buy-to-let investors opting to sell instead. That should reduce the imbalance between landlords and tenants, but only at the cost of increasing the number of properties for sale. It is hard not to feel that something will to have to give, and that is price, particularly among the new apartments favoured by buy-to-let investors.

What’s the moral of this tale?

Actually, this is not intended to be a tale of woe. Just to highlight the need to buy property rental property carefully. Too many people are just jumping in with both feet. Becoming a landlord should be viewed as a long term investment, and over the long term, I believe we are seeing a structural shift in supply and demand in favour of landlords.

We advise our clients how they can apply a buy to let formula which helps them to assess whether a property will likely make a good investment from the numbers point of view, no matter how sweet the honeysuckle or how idyllic the view. The mantra really does apply “the right property, in the right location, at the right price”.