Uncertain Times - A Time for Build to Rent (BTR) to Thrive?

Posted by Colliers on 7th November 2022 -

Prior to the Government’s market turmoil inducing mini-budget, net initial yields in Build to Rent (BTR) had been stable for some time and investors had been experiencing strong rental inflation.

This followed the rental decreases seen during the pandemic. With the Bank of England stepping into the bond markets and hinting at continued interest rate hikes it’s hardly surprising that investors, in arguably the most attractive alternative UK real estate market, hit the pause button on their Build-to-Rent plans.

Some are now starting to tentatively come off the fence in these early days after the mini-budget reversals, the subsequent despatching of the Chancellor of the Exchequer and our third Prime Minister in seven weeks. However, the market hasn’t returned to normal, and some investors are saying that they are unlikely to transact this side of the new year. Several market commentators are musing that a market correction in BTR is inevitable. However, as the economic and political mists begin to clear there are two fundamentals underpinning the UK’s rental market which may serve as a brake on such a correction – barriers of entry to home ownership for first time buyers and shrinking supply in the private rented sector (PRS).

Barriers for first-time buyers

The importance of this element cannot be understated. As shown below, house price-to-earnings ratios are now well above their previous peak, ahead of the Global Financial Crisis. With the average UK house price almost nine times the average salary. With interest rates rising and likely to stay at or around this level for the next two to three years, servicing the large amounts of debt most first-time buyers need is a major barrier that will exclude most from becoming homeowners.

To continue to read Click Here