Dramatic rise in buy-to-let investors set to drive home prices even higher

11th February 2016

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UK house prices are set to rise at an even greater pace as a rush of buy-to-let investors flood the market, according to new research.

The latest UK Residential Market Survey from the Royal Institution of Chartered Surveyors (RICS) concluded that while it has witnessed a modest rise in new instructions in January, buy-to-let investors are however dashing to get into the market ahead of the 3% hike on stamp duty which goes live in April.

Simon Rubinsohn, chief economist at RICS said as a result, “the near-term pressure on prices is intensifying despite a higher level of supply”.

He said: “How the tax changes planned for the buy-to-let sector over the next few years plays out remains to be seen, but there are concerns raised in the survey that existing landlords will look to either gradually scale back on their portfolios or exit the market altogether as the more penal regime begins to bite.

“Against this backdrop, it is perhaps not surprising that our key indicators point to further rent — as well as house price — increases.”

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Overall the group’s analysis found that new buyer enquiries rose for the tenth successive month in January, with the pace of growth in enquiries accelerating for a second consecutive report.

Feedback to the survey also continues to suggest that the recent increase in demand is due to a rush of buy-to-let investors looking to buy before the 3% stamp duty surcharge comes into effect.

Critically, 74% of respondents expect there to be an increase of purchases by buy-to-let investors prior to the changes.

Rubinsohn added: “As activity in the housing market gathers pace overall, agreed sales have risen over the month at the fastest pace since April 2014.

“The picture across the UK is mixed but most areas have seen a rise in sales since the start of the year and further increases are expected.”

The firm’s members said that while supply has gathered pace in the past two months, stock however remains tight with 46 properties per branch from 44.5, which is still 21% down compared to a year ago.

Notably, the increase was largely concentrated in London where a significant lift in properties coming to the market was recorded in January, with a net balance of +58% more respondents noted an increase. Elsewhere, sales instructions across the UK were much flatter.

Rubinsohn said: “Even with an improvement in supply, the rush to acquire buy-to-let property is pushing prices up, with 49% more surveyors reporting prices to have risen in January; typically our indicator has a six-month lead over ONS house price inflation.

“Looking ahead, house prices are projected to rise further over the next twelve months, with 72% more contributors expecting prices to increase rather than fall.”

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