Landlords - cash in on record rents!

by John Fitzsimons on 14 June 2011  |  18 comments
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Rents and demand are on the rise, while mortgage rates continue to fall. It's an exciting time to be a landlord!

The vast majority of landlords are looking to at least maintain the size of their portfolios, if not increase them, as rents continue to rise to new record levels.

Expanding portfolios

A new survey of landlords has demonstrated just how positive they are about their chances of making money from property. LSL Property Services’ poll revealed that 49% of landlords see now as a good time to invest, with just 1% of landlords believing it is now a smart move to reduce the size of their portfolios.

Indeed, a whopping 86% of landlords plan to either maintain or expand their portfolios over the next 12 months.

So while demand to buy property stalls to a near standstill in the residential sector, those buying investment properties cannot complete quick enough.

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Another new record

It seems like every couple of months we hear that rents have reached another new record high. And April was no different, with LSL reporting rents had hit an average of £692 a month, a growth of 0.8% from March.

According to the Royal Institution of Chartered Surveyors, 42% more surveyors reported rents rose rather than fell in the three months to April. It also suggested that rents in some areas have now risen so sharply that homes which were previously affordable are now out of reach for many. So would-be buyers are not only being priced out of purchasing property, but in some areas they can’t even afford to rent either!

Perhaps unsurprisingly, London is the worst hit area. In 2010 rents rose by a frankly ridiculous 19.1% according to Cluttons, while this year it forecasts rents will rise a further 8-10%.

Generation Rent

Rents continue to rise due to the vast levels of demand the private rented sector is currently trying to meet.

More than half (52%) of landlords surveyed by LSL reported a growth in demand for their properties in the last quarter, with 68% of them forecasting this to increase further over the next year.

Indeed, as we explained in How to be the perfect tenant, there are now around nine applicants for every rental vacancy in the UK, an incredible level of competition. And it’s not all down to choice, preferring the flexibility of the rental market over the constraints of buying a property.

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There are a number of reasons for this, both actual and perceived, including borrowers believing lenders reject everyone so there’s no point in applying (a remarkable 67% of those surveyed by Halifax). Of course things are not quite as bad as that, but it’s still pretty tough for many borrowers to access mortgage finance. And so long as that remains the case, it’s unsurprising that many will prefer to take their chances with the private rental sector.

Improving mortgages

Just to add to the current attractiveness of the rental sector for landlords, there has been a steady stream of enticing new mortgages launched by specialist lenders in recent weeks.

Platform has moved to cut interest rates on its buy-to-let deals by as much as 0.2%, while also launching new tracker deals with no early repayment charges – a useful feature for landlords concerned about the prospect of base rate rising quicker than expected.

Elsewhere, Coventry Building Society has also revamped its buy-to-let range, with two new five-year fixed rates. I particularly like the deal at 5.99% as it has a much more palatable fee (just £250 compared to £2,999) and also comes with no early repayment charges, again offering landlords an escape route if a five-year deal doesn’t look like the smartest bet a couple of years down the line.

Meanwhile, Skipton Building Society has been busy, unveiling a new suite of tracker mortgages, as well as loosening up its lending criteria. For example, the mutual’s buy-to-let deals are now available to first-time landlords along with more experienced borrowers, as well as on the purchase of new-build homes (though not flats). Meanwhile, the minimum eligible income for the main applicant has been cut from £30,000 to £20,000 per annum.

The mortgages still have some way to go, particularly when you consider the astronomical fees demanded, but the buy-to-let market looks set to have a productive future.

More: Beware this £26m property fraud | The only PPI worth buying

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