Fresh evidence from Paragon Mortgages’ latest Buy-to-Let Trends survey indicates that the average landlord is becoming more experienced and is maintaining or growing his or her current investment portfolio, in response to sustained demand from tenants.
 
More than 8 out of 10 (83%) landlords have been involved in the business for 6 years or more, and 35% have 11 or more years’ experience. 8% have over 20 years’ involvement in buy-to-let. In comparison, one year ago just 70% had 6 or more years’ experience and 29% had been in the business for 11 years or more.

John Heron, Paragon Mortgages’ managing director, observes: “More and more, buy-to-let is the preserve of the experienced investor, who takes a long term view and doesn’t react to short term market signals. This quarter, for the first time, we are seeing that more than 8 out of 10 landlords have been in the business for 6 years or more, while significant numbers have been in buy-to-let for 10 or 20 years or more."

"These are not people who went into buy-to-let on a whim when the stock market started to under-perform in 2000. Rather they are experienced investors who understand the dynamics of tenant demand and of the product they are offering. Of our sample of larger-scale landlords (with three or more properties), almost a third have been in the business for 11 years or more, and almost one in ten for over 20 years.”

Respondents were asked how they would describe their buy-to-let businesses in the current market. While the overwhelming majority – 77% - said their own business was ‘stable’, a significant minority of 17% described it as ‘growing’.

“What emerges,” continues John Heron, “is a picture of a business which is broadly stable and sound, but with some good growth potential. Interestingly, four times as many landlords said their business was growing compared with those who said it was declining. It’s particularly the larger scale, experienced landlords who are more bullish over current and future prospects. More than one in five of those report growth in their business, as compared with only one in twenty of small-scale landlords.”

“How landlords describe their business correlates very closely with how they describe tenant demand. 19% say tenant demand is growing, while 67% describe it as stable. Less than 10% say it is declining.”

Reflecting this generally positive sentiment, average portfolio size has risen again this quarter, having seen a small correction earlier in 2004.

“Having paused for breath briefly in the second quarter, we’ve now had two quarters of steady increases in average portfolio size, so the typical portfolio now comprises 12 properties, up from 9 properties two years ago and just over 11 one year ago,” says John Heron.

As for the future, landlords expect to see further gradual growth in the size of their buy-to-let portfolios. From the current level of 12 properties, they expect to grow the size of the average portfolio by 5% to 12.6 properties by the end of 2005.

Amid much speculation as to the future trend of house prices (and some observers predicting price falls), investor landlords have a relatively sanguine outlook on property values in 2005. Typically, they expect the value of their existing portfolios to rise by 0.2% over the next 12 months.

John Heron continues, “Investor landlords as a whole are not counting on any significant capital appreciation in their portfolios in 2005, but neither do they expect falls. The consensus among landlords is that property values will remain broadly flat over the year, but with sustained levels of demand from tenants, buy-to-let remains an attractive business for them to be in. As ever, you need to understand tenants’ needs and expectations, research carefully any investment decision and take a long term view of buy-to-let as a business.”