Amidst the maelstrom of conflicting views about the letting industry, Quick Move Now takes a look at its prospects for generating decent returns on investment in the future…
As the largest investor in residential property in the UK, we constantly receive conflicting views in the press and via property commentary regarding the state of the lettings industry. We decided to take a logical overview of all the statistics and information on offer in order to provide a clear idea of where the industry is heading.
One recent argument we’ve heard concerns whether it is cheaper to rent or buy a property; Zoopla published figures that reveal it is currently cheaper in 84% of British towns and cities to own a home and pay monthly mortgage repayments than it is to rent and thisismoney.co.uk reported that owning a house rather than renting one saves homeowners £194,000 over a 50 year period.
The idea of buying property instead of renting is a popular one but does it mean landlords need to worry that they will miss out on prospective tenants and the rental industry will suffer? No! It is becoming increasingly difficult to save for a deposit and obtain mortgage lending, particularly for first time buyers, so even if tenants like the idea of leaving rented property and buying their own home, this move is not always feasible.
Demand for rental property is growing – the percentage of people privately renting property in England has increased from 10% to 16.5% over the last ten years. This pattern is set to continue if it remains as difficult as it currently is to gain a position on the slippery steps of the property ladder. A report by estate agent and property guru Savills and property company Right Move shows that one in six families in the UK at present is renting the home they live in – this is the highest proportion since the 1970s. Savills and Right Move predict that this will be true of one in five families by 2016. They believe that Rental Britain is here to stay, and we are inclined to agree.
According to reports, although rental demand is strong, finding reliable tenants who are able to meet payments is difficult for landlords. Between October 2011 and March 2012, four in ten members of the Association of Residential Letting Agents (ARLA) recorded a rise in the number of tenants unable to make their rental payments. Just what landlords want to hear! This causes worry and uncertainty for landlords, especially those reliant on tenants’ rent in order to pay back buy-to-let mortgages.
In the long-term, there are ways to solve this problem and find tenants who are able to meet payments. As credit reference agencies and rental agents offer tenant check schemes and have access to a wealth of information, credit checks on prospective tenants are more readily available than they have been in the past. Studying credit histories and references means that landlords can avoid tenants who are likely to default on payments and be confident in their chosen tenants’ ability to pay rent promptly and in full.
Always make sure you have the right tenant. We all know that’s not as easy as it sounds! Sometimes tenants are already in-situ when they become unable to pay rent. The best advice we have come across for dealing with a situation like this is:
Make sure all correspondence, for example, rent arrears reminders and notices of intention to seek possession, is in writing and a thorough record is kept.
Don’t be afraid to seek professional advice and go through the courts to resolve a problem if necessary.
Refer to The Housing Act 1988, particularly sections eight and 21 – it is a landlord’s best friend!
Landlords need to be aware of their rights, the rights of their tenants and common rental practices in order to decide on the best course of action in each individual situation.
It is not only these rent arrears situations that require landlords to focus on tenants’ rights. Recently, stories in the press have raised issues relating to the health and safety of tenants living in and contractors working on a rental property. Landlords have been fined for errors such as failing to update gas safety certificates and not providing safe environments for contractors to work in.
Although it is difficult to ensure that health and safety guidelines are followed at all times, the safety of tenants and contractors alike is of paramount importance and is an essential part of being a landlord. Ultimately, landlords who embrace change and follow regulations will reap the rewards as they will create more tenant confidence and promote lettings as a reliable industry.
Maybe it isn’t all that bad being a landlord! We think the rental market is standing strong despite being at times the subject of negative or contradictory coverage. Amidst all the conflicting information, one statistic says more to us about the financial prospects for landlords and the lettings industry than any other: CHL Mortgages’ survey shows that 59% of landlords plan to maintain the size of their portfolios and 31% intend to take on more properties over the coming year.
A failing landlord struggling to make payments on existing properties is not the ideal candidate for obtaining further buy-to-let lending, so rather than landlords needing to expand their portfolios in order to break even, we think it is more likely that they are spotting beneficial opportunities and experiencing rewarding returns on investment.
So, what is the outlook for generating returns on letting investment in the future? For those who move with the times, taking advantage of an increase in the number of potential tenants and the shelter of a better regulated industry, the future is bright!