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The changing face of the rental market

Monday 29th July 2013

With savers receiving dismal returns from banks and building societies, a growing number of people are unsurprising turning to the UK buy-to-let property market as a means of supplementing their income. But before expanding their portfolios further, many of these learner landlords need to do their due diligence, claims the National Association of Residential Letting Agents (ARLA).

The YouGov SixthSense Buy-to-let: Landlords and Mortgages report reveals that the buy-to-let market has shifted somewhat from long-term investors to more novice players with three distinct profiles emerging: ‘Investors’, ‘Good Parents’ and ‘Reluctant Landlords’.

Investors remain the predominant landlord – over three quarters (76%) of all landlords own a rental property with the main motivation being investment – but the profile of this group has moved towards shorter-term gain. The findings reveal that, in 2013, over half (56%) of new landlords consider their buy-to-let property as a short-term investment as they look to capitalise on low interest rates and schemes such as the Government’s Funding for Lending programme.

The ‘Reluctant Landlord’ – homeowners forced to rent out their homes because they’ve had difficulty selling – has also grown in size since the downturn. Almost three in 10 (28%) of landlords who entered the market in 2012 did so reluctantly with at least one of the properties they owned.

‘Good Parents’ who have moved into BTL to offer financial support or provide a financial legacy for their children now account for over a quarter (29%) of the market.

Susan Fitz-Gibbon, President of ARLA said: “The economic downturn has brought new entrants to the buy-to-let market and has also had an impact on the way in which existing players invest. With more landlords entering the industry, less experienced individuals need to ensure they have thoroughly researched and fully understand that there are risks and responsibilities associated with the role.

“It is important to have realistic expectations of what returns you are likely to receive from your property; it is also important to remember the significant responsibility in adhering to regulatory requirements.

“Speaking to an ARLA agent should be a vital part in the research process. It will provide individuals with expert insight into the risks and responsibilities involved and they will receive important information and guidance on the process.”

With this in mind ARLA has prepared the following top tips for each of the landlord categories identified:

Investors:

· Do your sums. Arrangement fees tend to be larger than those of residential mortgages and so do deposits. You should factor in all costs and be realistic about the level of rent you will achieve to avoid any nasty surprises

· Factor in void periods. The latest research from ARLA shows that average void periods have actually increased – up from 2.9 weeks in the first quarter of 2013 to 3 weeks in the second quarter**

· Talk to your local ARLA agent to see what type of tenant your property is likely to attract, then tailor the property to the tenant’s needs and tastes

· Aim at a specific market, whether it’s students, young professionals, corporate tenants or families. Different markets will have different needs; students will need clean and basic accommodation; young professionals might not want the hassle of a garden and will want to be near good transport links; and families will expect the house to be of a high standard and not too far from schools

· For the investor looking to take on a bit more risk to increase their returns it’s always a good idea to try and identify future hot spots. Keeping up-to-date on regeneration plans and new transport links provide opportunities for house prices to increase above the average rate

Good Parents:

· Be aware of the risks and plan for interest rate rises. Property prices and interest rates can go up as well as down; you need to ensure you will still be able to afford the repayments if interest rates do rise

· To ensure you have a successful rental property you should always remember the basics and put yourself in the tenant’s shoes. Ensuring the buy-to-let property is in a good location and a place where people would like to live will improve the chances of occupation and demand for your property

Reluctant Landlords:

· Seek advice from an ARLA agent and look out for the logo. If your only option is to rent your home then talking to an experienced and accredited letting agent will enable you to get a good idea of the kind of rent your property should achieve as well as providing you with vital information on the legalities, regulations and obligations that apply to landlords and tenants.

Whatever your motivation, with any property you rent out you need to make certain that you follow all legal requirements and building regulations.

              

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