Landlords set to ramp up rents

by Christina Jordan on 13 January 2011  |  16 comments
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The future's bright for landlords, and many are getting set to hike rents

It’s about time landlords had some good news and they have certainly been blessed with it in the last six months.

The Coalition Government scrapped unpopular plans to increase red tape in the sector, more lenders entered the market in 2010 and the number of available mortgages doubled, while tenant demand, according to lettingaproperty.com is also soaring.

Rents to rise

At the same time average rent is at an all-time high at £692 a month, according to LSL Property Services, and now landlords are planning to hike it further.

A new study by lender Paragon Mortgages has revealed that landlords are feeling pretty bullish at the start of 2011 and are planning to make the most of the favourable conditions by increasing their rental income.

A massive 41% of landlords plan to increase their rents during the next 12 months, with 45% saying they expect tenant demand to grow further this year. The majority (55%) will maintain their rents while just 4% said they will reduce them.

The research shows that almost a third of landlords are planning to increase their rent by up to 4% (which is pretty modest when you take into account inflation), while 10% plan to push up their rents by between 8% and 10%.

And who can blame landlords for making hay while the sun shines?

With first-time buyers still struggling to get a mortgage unless they have a hefty deposit, more people need to rent for longer. Added to that  is the fact that the long-term drivers of the market -- such as high student numbers and inward migration -- are still looking healthy, so there is clear growth in the number of households requiring rental accommodation.

Little wonder then that a massive 71% of landlords are feeling confident about the prospects for their portfolio over 2011. When asked what makes them feel so positive about the sector this year they gave the following answers:

• Tenant demand (54%)
• Stable interest rates (48%)
• Ability to increase rents (30%)
• Wider availability of buy-to-let mortgages (16%)
• Easing of mortgage lenders’ criteria (13%)

But despite the encouraging outlook it’s not all plain sailing for landlords…

Storm clouds ahead

While the vast majority of landlords are positive about 2011 they still have some concerns. When asked by Paragon to list their major worries for 2011, the biggest two responses were unsurprising.

A significant 46% said they worried about the level of regulation they were expected to comply with (despite the Coalition scrapping some of the proposals mooted by the Labour Government) while a large chunk (42%) were worried about tenant unemployment.

And for very good reason.

Related how-to guide

Become a buy-to-let landlord

How to pick the right property, get the right mortgage, take out the right insurance, choose the right letting agent and most importantly, unravel all that red tape!

See the guide

According to the Association of Residential Letting Agents (ARLA) this week, 40% of letting agents reported a rise in the number of tenants struggling to meet their rental payments. This is the first time the figure has increased in 18 months and suggests that job and pay cuts are starting to impact on tenants’ ability to pay their rent. It’s no surprise really, but this obviously has a direct impact on landlords’ ability to meet their own mortgages.

There was also a rise in the number of tenants haggling with landlords over rents, again showing an increased number that are struggling to meet their commitments. It’s a problem that is likely to get worse during this year, as the looming public and private sector job cuts take hold.

But let’s not get too gloomy! The overall feeling in the buy-to-let sector is definitely one of positivity. Indeed, buy-to-let activity in December was up 8% on November, according to Connells Survey and Valuation and up an enormous 53% on December 2009.

And it’s not just healthy tenant demand that is encouraging investors to buy. They are also, finally, beginning to find competitively priced funding available to do so.

Better mortgage deals

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In the last few years landlords have been hugely constrained by restrictive mortgage criteria and a major lack of products. The market is by no means perfect now, but it’s getting better. During the last week alone The Mortgage Works, Platform, Coventry Building Society and Leeds Building Society have all revamped their buy-to-let ranges and the market continues to get slowly more competitive.

If you reckon now is a good time to profit from property, there is a wide range of mortgage products available, or if you are an existing landlord looking to refinance your portfolio, you could find that the remortgage deals now on offer are better than you expected.

Below are some of the best buy-to-let deals on the market right now.

20 fab fixed rates

*London Interbank Offered Rate (0.73)

15 top variable deals

*London Interbank Offered Rate (0.75)

More: How to build a nest egg for your children | The secret reason banks reject you

At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article. 

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.