Aldermore Market Report: The Nation's favourite investment

The UK economic recovery is gathering pace, with growth accelerating and unemployment edging downwards.

Recent data released by the Office of National Statistics in October showed that the UK’s economy expanded by 0.8 per cent in the three months to the end of September, marking three consecutive quarters of growth and the economy’s strongest performance for three years.

The three key sectors – services, construction and production – all expanded and most believe the recovery will be sustained throughout the rest of the year and into 2014, helped by record low interest rates and increasing confidence.

We are not completely out of the woods yet, but the macro-economic view for the UK is encouraging. Bank of England Governor Mark Carney’s forward guidance gives us some certainty that interest rates will remain at historic lows for another couple of years, and that gives SMEs – which still account for around 60% of private-sector employment in the UK – time to rally and increase their investment, which is critical to self-sustaining recovery.

Current data suggests that many SMEs are sitting on their cash, waiting for proof that the economy really is firing on all cylinders. But the likelihood is that many people will only feel the economy is functioning normally again when interest rates begin to rise, and that’s a bit self-defeating because it may prevent businesses and individuals from obtaining the best rates on their finance while they are still available.

With that in mind, today is rare window of opportunity in Britain for property investors. Availability of credit is increasing, thanks in part to the Government’s Funding for Lending scheme. At the same time lenders are trying to accommodate more borrowers at more generous Loan-to-Value ratios to help those with smaller deposits.

But there is still a long way to go; for most people, especially younger borrowers, buying their own property remains a pipedream because they simply do not have the lump sums necessary – or slack in their budget to cope with any interest rate rises when they come.

Demand for affordable rental property is therefore still burgeoning, with rents forecast to increase throughout this year and next.

Demographically speaking, and from an investor’s perspective, things look terrific for the property market right now, and official figures certainly point to a supply/demand imbalance which favours the rental market. We should be building around 260,000 new homes a year but we are currently achieving only half that, about 130,000 a year in total. Indeed some longer-term forecasts suggest we could have a housing shortfall of two million homes by 2020. It will be left up to private landlords to fill that gap.

With mortgage rates at near record lows and credit supply easing, more landlords can get in on the act, whether they be first-time investors or those with a large portfolio of properties. Our experience suggests that professional investors are rapidly expanding their portfolios to take advantage of these circumstances.

By Rob Lankey, Managing Director of Commercial Mortgages, Aldermore Bank