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A Quarter of Landlords Looking To Expand Portfolio

May 31, 2013 | Company News   Landlord News  

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private_rented_sector_facing_scrutiny_400_01A study by letting agents Allsop and BDRC Continental has shown that almost a quarter (23%) of buy-to-let landlords intend to purchase at least one further property over the next year. 61% of landlords said that they are confident about the future of their business.

Tenants were found to be staying in their properties for an average of two-and-a-half years. During the last year, four in ten landlords agreed rent increases with their tenant, while just 7% of landlords had to lower their rents.

Paul Winstanley, partner at Allsop, said, “The demand for rented housing and the constraints on the wider housing market mean that rented housing is likely to retain the same income dynamics for the medium to long term. The rented sector is growing at such a rate that landlords will share in a secure and attractive return.”

Although the housing market is largely subdued, buy-to-let is thriving. Buy-to-let mortgages accounted for a record proportion of lending in April, proving that property is once again an attractive investment for those looking for sound business opportunities.

The lingering wariness in the wake of the credit crunch appears to be wearing off, with buy-to-let mortgages accounting for 13.4% of lending in the first quarter of 2013, as revealed by the Council of Mortgage Lenders (CML) earlier this month. It marked an increase of £500m on the same period the previous year.

According to Moneyfacts, there are now, at almost 500, twice as many buy-to-let mortgages on the market as three years ago, as lenders are responding to the growing demand for loans. A lot of the demand is from amateur landlords, of which there have been a growing number due to the slow housing market conditions driving people towards letting their property rather than selling it.

Some in the industry say that now is the ideal time to get into the market. Bryan Robertson, chief executive of Lomond Lettings, said, “With housing prices remaining low, now is the time to invest in the right buy to let property to maximise the opportunity that lack of supply and over- demand is causing in the rental sector.

“The economic circumstances encourage people to rent for longer before buying. Indeed, the flexibility of renting may well see a diminishing desire to become tied to a large mortgage for the younger generation.”

However, such trends can lead to some diving in head first, thinking it will easy money, then, in an unexpected, nasty surprise, hit their heads on the bottom. Although buy-to-let property can generate eye-catching yields of up to 8%, returns can vary greatly depending on property type.

Mark Dyason, director at Edinburgh Mortgage Advice, said, “At lower purchase prices yields are higher, with landlords getting well priced properties seeing an initial yield of 7 to 8 per cent. This is lower as you go up the price scale, although landlords at higher prices can expect to see greater house price appreciation in the longer term.”

Of course, another challenge for first-time landlords is tenant selection, which is vitally important for receiving rent in full and on time. The CML’s figures show that the number of landlords in arrears by more than three months has fallen a little bit this year, but with the economic road still bumpy, tenants could find themselves struggling, which would then affect one’s ability to cough up the cash for mortgage repayments.

Mr Robertson said, “While there are significant returns to be made, there are also pitfalls such as investing in the wrong areas and not checking out tenants properly before signing leases.

“It is important to reduce the risks in the market by finding the right tenants that will pay on time and reducing void periods.”

Tenant demand for private rented accommodation may be sky high, but the wrong type of property in the wrong area, with the wrong tenant, can be a costly mistake.

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