As house prices fall and the mortgage drought prevents people from buying,
frustrated homeowners are choosing to let their properties rather than sell
them at a discount, and are renting other homes elsewhere.
Figures this week from the Royal Institution of Chartered Surveyors (RICS)
indicate that the number of people letting their properties has increased at
its fastest rate since the survey began in 1998. “Established investors have
been reaping the benefits of the housing downturn for some time,” explains
James Scott-Lee, a spokesman for RICS. “They will continue to do so in the
short term. However, ever-increasing supply could have an impact on rental
growth as tenant options increase.”
The effect of the new supply of homes on rent is particularly strong in
London. Knight Frank reports that tenant demand is up 25 per cent in a year,
but the supply of homes has increased by 35 per cent. Liam Bailey, its head
of research, predicts that rents in London, which had been rising by as much
as 7.6per cent in prime postcodes in the year to June, will drop 10per cent
this year.
Savills reports that rents have already fallen in some postcodes, and are down
10 per cent already in Docklands, an area of high supply. Cluttons reports
that rents are down 5 per cent in South Kensington, Chelsea and
Knightsbridge.
The prediction of falling rents comes just as buy-to-let investors face
difficulty in securing competitive mortgage deals and are grappling with
more complex and costly tenancy laws. The Government already requires
landlords to protect tenants' deposits, and from October energy performance
certificates on rental properties will be compulsory. The Law Commission
delivered final recommendations to Parliament this month on proposed
buy-to-let reform, which would require property inspections and membership
of a self-regulation scheme. Should they be adopted, the new rules may be
made compulsory as early as next year.
Figures from moneysupermarket.com show that the number of buy-to-let mortgages
available has fallen in the past year from 4,384 to 307. Those left require
larger deposits and charge increased interest rates. This means that
landlords are under pressure to increase rents to counter the shortfall.
Lynsey Sweales, a director of the mortgage broker The Money Centre, says:
“New mortgage deals are being done, but these are by the savvy landlords who
have put money away to use as a cushion for these hard times.”
When The Money Centre analysed the buy-to-let market, 82 per cent of the
investors surveyed said that they would keep their existing properties. And
the more experienced landlords see buying opportunities even in these
conditions: 16 per cent are in the process of purchasing further buy-to-let
property; for investors who already own more than 20 properties, the figure
is 40 per cent.
'Know your area'
Stephanie Traynor, pictured, entered the buy-to-let market six years ago. “I
used to run my own business and didn't have a pension,” she admits. “The
business collapsed and I had little money to show for it.” She then went to
work in sales and earned some handsome commissions, which she decided to
invest in property. “I bought four properties and sold one on very quickly
at a good profit.”
All three of Traynor's properties are studios or one-bedroom flats, which she
finds an easy letting option, in the area around Eastbourne and Brighton.
She admits that she has been lucky as there has never been a time when they
were empty. One was bought with a sitting tenant, a disabled man, who is
still in the property. Traynor is not looking to expand her portfolio,
however. “I'm happy with the three I have got,” she says.
She advises new landlords to have realistic expectations and to keep to an
area that they know well. “Try and get as much information on the area and
type of property you are looking to invest in,” she suggests.
“There is also the extra burden of a lot of new legislation for landlords,
which you need to keep a handle on.”
'Treat it like a business'
Michael McVeigh has played the buy-to-let market very well. He bought his
first property four years ago with the aid of his mother, Kathleen, who saw
it as a chance to supplement her pension. They clubbed together and bought
another four properties, each time with a 15per cent deposit. Property
prices were then escalating and McVeigh wisely chose to take out equity in
the property at various intervals by remortgaging and putting the money in
the bank to help to cover any rental voids.
“I only invested in an area I know very well - Rotherham in South Yorkshire -
and chose to buy houses close to a very good comprehensive school, which has
attracted families as tenants, who tend to stay longer,” he says.
He now owns 21 buy-to-let properties and is in the process of buying three
more. “Newer landlords are finding it difficult to finance buying property,
so competition is reduced,” he says.
His advice to new landlords is to treat buy-to-let like a business. “It isn't
like other investments, it is very hands-on. There will be ups as well as
downs, but you really have to be in it for the long term. Property
investment is no longer a get-rich-quick scheme.”
<br/>Refusing to sell because the market wrongly values your asset?
<br/>
<br/>Markets are rarely wrong. This is a clear case of denial.
<br/>
<br/>Anger, bargaining, depression and acceptance still to go.
<br/>
<br/>Bankruptcy should also fit in there somewhere...
Pat, Coromandel, NZ
He remortgages to put the money in the bank ? doesn`t make any economic sense to me.!! He pays interest on the remortgage to receive a lower interest from depositing in a bank...duh!
Geoff, Birmingham,
Well I suppose it depends if you are in it for income or capital gain. The fact of the matter is a property on a repayment mortgage over say, 20 years, successfully let during that period where the rent also gives you a profit is yours, at the end of the term. For Free.
steve, leeds, uk
Well done Michael, it is always good to hear some positive news in these dull times.
Kim D'arcy-Masters, Newbury, Berkshire,
The richest man in the world before Bill Gates was a Japanese property developer before their bubble burst. Taikichiro Mori.
A fella made a fortune in New York property in the late 80's until their bubble burst. Donald Trump.
Property is NOT a stable investment, never has been, never will.
Andy Doyle, Manchester,
Can we have an update on Michael's property 'business' in, say , 3 years when property prices have reverted back to 2001 levels. Unless of course the banks have called time on his overly leveraged gamble on the property market (McVeigh wisely chose to take out equity in the property!!!!!)
Michael , London, England
Michael McVeigh's business model looks a bit dodgy! 21 BTL's in the last 4 years! 15% deposit! Property prices have fallen by 4.6% since August 2007 in Rotherham and he MEW's to obtain deposits for other properties. Looks like all the good mortgage deals will be slipping away from him.
Melanie, Doncaster S.Yorks,
Its all very well if these are genuine commercial rents and not paid by the taxpayer through 'housing benefit'. It is high time that the government haggled such landlords down during downturns to match the way it automatically allows them to annually increase rent at other times.
Eric Skelton, Cardiff, Wales