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Published 1 March 2015
The performance of residential property as an investment class has started to attract the attention of large institutional landlords such as pension and insurance funds. They join buy-to-let landlords and the larger landlords already in the market. These institutions have traditionally focused on commercial property, but are now looking at the residential sector with much more interest than ever before, particularly in London. I asked Margarethe Theseira, Centre for London Senior Research Fellow, to examine in more detail the context of activity and the conditions necessary for a continued increase in institutional interest.
A combination of population growth unmatched by an increase in housing supply and constrained household finances has led to a rapid rise in the numbers of British households living in the private rented sector. Nationally, 18% of households are privately renting, up from 12% a decade ago, and in London a quarter of households now do so. Projections show an additional 416,000 households in London over the next ten years and expectations are that by 2025 some 37% of households will be privately renting.
For the past two decades, this demand for homes to rent has mostly been met by small-scale investors – around 89% of landlords are individuals and couples and the buy-to-let market is booming once again. Last year just over 100,000 loans were made to investors for purchasing properties and a further 96,000 loans to investors re-mortgaging their existing properties.
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