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Confidence in buy-to-let assured by high tenant demand

August 31, 2012 | Landlord News  

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According to a landlord sentiment survey conducted by LSL Property Services plc, strong tenant demand and attractive purchase prices has strengthened landlords’ confidence in buy-to-let.

Of the 1,464 landlords that responded to the August 2012 survey, 48% believe that now is a good time to invest in property. Only a tiny minority (1%) think that now is a good time to shrink their portfolios. Of the landlords who said that now is a good time to invest in rental property, just over four-fifths (82%) cited attractive property prices as their reason for believing so, while 53% mentioned strong tenant demand as a contributing factor.

Commenting on the results, David Newnes, director of LSL Property Services, said, “House prices are still subdued in many parts of the country and tenant demand is still growing. This is presenting landlords with the opportunity to secure strong yields on properties, and boosting confidence in buy-to-let as a long-term investment.”


The key driving force behind recent rent rises has been the strong tenant demand, with LSL’s latest Buy-to-Let Index showing rents hit a record high of £725 per month in England and Wales in July. 44% of landlords, according to the survey, have seen a rise in tenant demand, while only 1% reported a decrease in demand. This growth is predicted to continue, with close to two-thirds (64%) of landlords anticipating demand to increase further in the next 12 months.

Unfortunately for already cash-strapped tenants, four in ten landlords expect to increase rents in the coming 12 months, while only one in a hundred expect to reduce their rents. Of those expecting to increase their rents, it is anticipated that they will do so by an average of 4.5%.

David Newnes went on to say, “The majority of landlords expect tenant demand will increase in the future, and as long as lending to first-time buyers remains in the doldrums, and new house building remains subdued, we won’t see demand for rental accommodation tail off. In these conditions, while affordability may increasingly come into play as landlords set rents, they are far more likely to continue to rise than tumble in the coming 12 months.”

Although nearly half of landlords think now is a good time to invest in rental property, exactly half who have recently attempted to raise mortgage finance think that it is not as easy to secure as it was 12 months ago. Only 11% reported believing it is now easier to obtain mortgage finance.

Of the landlords that had recently taken out a mortgage, 45% reported that monthly payments as being more expensive than 12 months earlier.

David Newnes commented, “Mortgage finance is not just a problem limited to first-time buyers. The level of buy-to-let lending may be steadily climbing, but it is still just a third of the level five years ago, and securing finance remains a serious stumbling block for many landlords. The private rented is still crying out for more investment, and closing the gap between supply and demand is dependent on a growing number of investors being able to access the affordable mortgages they need to increase the pool of rental properties available.”

Research conducted by free services comparison company uSwitch has found that 3% of people in private rental accommodation have been unable to switch energy suppliers because of restrictions on their rental contract, while 7% had been expressly told by their landlord that they were not allowed.

Only 38% have switched to a cheaper energy supplier. Less than a third were found to be unaware that can switch energy supplier, while over a third see no point in switching because they won’t be living in the property long-term. However, potential annual savings for switching to a cheaper supplier could be as high as £420.

Landlord reaction is a concern for many tenants, with 22% saying that their landlord doesn’t want to be bothered by tenants, while just 16% thought that their landlord would welcome their desire to switch supplier.

They found that over a quarter of tenants pay little or no interest in the energy efficiency of their home, potentially costing them hundreds of unnecessary pounds a year more on their energy bills.

26% wouldn’t talk to their landlord about energy efficiency because they don’t think their landlord would take any interest, while one in ten wouldn’t even feel comfortable raising the subject with their landlord.

Over 40% of private tenants say that the home they are currently living in has little or no energy efficiency measures installed.

Commenting on the findings, Ann Robinson, Director of Consumer Policy at uSwitch, said, “With more and more people renting, it’s vital that people don’t feel that being a tenant means relinquishing the right to control their household bills. The fact is that if your name is on the bill you have the right to shop around for a better energy deal.

“If your rental contract says otherwise, then talk to your landlord or letting agent – at the end of the day it is in both parties’ interests for rented homes to be on a cost effective tariff and as energy efficient as possible.

“Now is also a good time for private landlords to look at energy efficiency. Energy suppliers have a pot of money to spend on making their customers’ homes energy efficient and only have until the end of this year to spend it in order to hit government targets.

“As a result, there are now a huge number of offers for home insulation, ranging from the free to the heavily subsidised. Taking advantage of these now would benefit both landlords and tenants, as a minimum outlay will see lower energy bills and a more attractive, rentable home.”

Total Landlord Insurance has put together a report in which they have analysed claims made over the past two years, revealing that claims made for malicious damage came to a total of £700,000, placing it in the top three most common insurance claims. However, many landlords find themselves unprotected, as malicious damage is not automatically included in their cover.

Eddie Hooker, CEO of Total Landlord Insurance, commented, “Malicious damage is not always covered on standard landlord policies, and those that do, often only protect against malicious damage caused by a third party such as someone putting a brick through the window, not damage caused by the tenant.”

Claims for malicious damage eclipsed claims for accidental damage, which amounted to just £50,000. Malicious damage claims included a broken window, a trashed property, the deliberate theft of, and setting fire to, the buildings fixtures.

Hooker said, “Where student properties are concerned, protecting against malicious damage is even more important, and not just because the perception of students is not always positive, but because their leases are often shorter term and their properties tend to remain empty over holiday periods, putting them at greater risk.”

In Scotland, fresh concern has been raised that potentially many letting agents will go bust as a result of the new tenancy deposit law, leaving a black hole in their accounts that could be as high as £50m. This in turn could have a massive knock-on effect for landlords, who would be forced to find the money for their tenants.

It has been reported that a number of Scottish letting agents are already in the process of selling up ahead of the November deadline that will require them to place all tenants’ deposit money, on both new and existing tenancies, in a custodial scheme.

Software company VTUK recently hosted a debate where key players in the lettings sector, including representatives from ARLA, the Scottish Federation of Housing Associations (SFHA), Shelter Scotland, a number of major Scottish letting agents, and Elaine Murray, Scotland’s shadow housing minister.

Peter Grant, managing director of VTUK, said, “Many Scottish agents have used tenants’ deposits for their own businesses’ working capital requirements. The clock is now ticking and agents have until November 2 to find the finance required in order to place deposits into one of the three approved schemes.

“Given current economic conditions and the restrictions banks are placing on lending, there is a real danger that many agents simply won’t find the money and will go out of business, leaving landlords and tenants significantly out of pocket.
It was stated at the debate that Scottish agents could potentially have a collective £30m-£50m hole in their accounts, which really demonstrates the extent of this problem.

“The issue is compounded further, as the Scottish legislation only allows custodial schemes, where deposits are required to be physically transferred to one of the three schemes, whereas the legislation introduced in England and Wales allows for insurance based schemes which enable agents to pay a fee to insure the deposit, removing the need for a physical transfer of funds.

“I am genuinely concerned that the tenancy deposit legislation introduced in Scotland could result in a swathe of administrations, particularly amongst the smaller, independent agents, that would be damaging for the industry and consumers alike.

“Additionally, the scheme offers no protection for money outside of the deposit, such as the rent. So while the introduction of the scheme is certainly a positive, the strong message emanating from the debate was that more can be done and the legislation introduced, in its current form, could well create as many problems as it provides solutions.”


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