The UK rental sector is largely refereed to by the phrase Buy To Let (buying a property to let/rent it to a tenant). BTL is the label. BTL as a sector is 11 years old. Prior to 11 years ago private individuals could not obtain a conventional mortgage for an investment property. They needed to use a company structure and commercial financing.
Here are two quick quotes from an industry association survey (ARLA – Long Term Investors Continue to Dominate Buy to Let).
Buy to Let investors borrow an average of 73% of the purchase price for their property investments, while a sizable minority, one in eight, borrow less than half. Over 40% of these investors buy properties that are over 50 years old and less than a fifth buy new build. On average, investors expect to keep their properties for nearly 17 years.
The above might seem normal in the US but it is rather surprising for to some UK investors who are not active in the property marketplace. They assume that property investors are speculators rather than long term investors.
The ARLA Index shows that the annual rates of return for a cash purchase of residential rental property average 11.18%. For geared investments the average is 21.68%. These returns include both rental income and capital appreciation.
“Geared” means to use leverage. To finance property with a loan rather than just paying 100% in cash.
From the ARLA website home page…