Written By Em

Em

Em Morley

Predictions and Forecasts for the Rental Market

Published On: August 31, 2012 at 5:14 pm

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Recent reports have provided extremely welcome reading for buy-to-let investors. Indications suggest that due to increasing rents, recovering property prices and low interest rates, investors can expect profitable returns on their investment during the next 13 years.

Just what does the future hold for the buy-to-let sector?

Rent hike

Statistics from the Royal Institute of Chartered Surveyors (RICS) indicate that rental prices have risen by 4.3% over the previous 12 months.[1] RICS believe that this is due to the fact that mortgages for potential homeowners are still difficult to achieve.

In addition, RICS predict a 3.9% increase in rent prices over the next year, believing that demand for rental accommodation will climb, with supply remaining even.[1]

Indications also suggest a regional differentiation in rent prices. For example, rental prices rose by almost 7% within the North West of England during the last 12 months.

Predictions and Forecasts for the Rental Market

Predictions and Forecasts for the Rental Market

 

Rental price hikes are worrying a number of industry figures. Peter Bolton King, Global Residential Director at RICS stated: “While tenant interest is still riding high, what remains to be seen is whether many are willing to meet the increasing rents being demanded by landlords.”[1]

Bolton King went on to say: “It is clear we have seen rents grow steadily right across the UK for some time. This is partly down to the problem of the scarcity of mortgage finance and the large deposits required by lenders.”[1]

Future estimates

Industry forecasts for the future of rental and property markets predict a 2% increase in house prices until the year 2025. Forecasters suggest that there will be a marked shortage in supply of privately rented accommodation, when demand returns to its pre-recession level at the back end of this decade.[1]

It does however seem to be the premium time for landlords to extend their existing portfolios. With house prices rising, landlords able to extend in the present climate could reap the rewards in future years.

However, John Hawskworth, Chief Economist with PricewaterhouseCoopers, urges caution: “Housing is a potentially risky asset as recent experience makes all too clear.”[1]

[1] http://www.landlordexpert.co.uk/2012/08/31/the-rental-market-predictions-and-forecasts/

 

 

 

High Returns on Student Accommodation

Published On: August 30, 2012 at 3:51 pm

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Landlords can expect a higher return on student properties than most property investments today. This is due to thriving student rental income, according to a study by estate agent Knight Frank.

For example, a typical studio flat in Exeter is now worth £85,000, a strong increase from its £65,000 purchase price. This flat would receive £515 in monthly rent from a student.

Based on these prices, this flat would produce a £6,180 income annually before tax and letting agents’ fees. This is equivalent to more than 9% yield based on the original value of the property.

High Returns on Student Accommodation

High Returns on Student Accommodation

Landlords looking to move into this sector are advised to look for small houses that would be suitable for modernisation. These properties benefit from being near a university, or with good transport links.

Within a decent area, the house can be updated to suit student occupants. Reception rooms can be converted into bedrooms, for instance. It is important, however, to ensure that prospective landlords have checked whether they must register their property with the local council, if it is to house a large number of students. Details can be found at landlordzone.co.uk on this matter.

New-build flats or houses are more expensive to buy, and generally are smaller than older homes. Nonetheless, rents tend to be higher on newer properties.

Top 5 university locations for prospective investors

1 London There are more than 250,000 students within the capital city. In 2011, the average weekly rent paid for a student flat was £278. An en-suite room in a shared property was £210 a week for a student.
2 Brighton The University of Brighton holds about 21,000 students, alongside more than 12,000 at the University of Sussex.
3 Edinburgh Scottish and EU students are exempt from fees within Scotland, so demand is high. The University of Edinburgh has calculated that the average rent paid per week by students in either shared accommodation or individual flats, is between £70-£76.
4 Durham As a small town with over 11,500 undergraduate students, Durham is in high demand of low-cost accommodation for its students.
5 Manchester Rooms or apartments can vary from £50 up to £140 a week, according to accommodationforstudents.com.

John Heron, of Paragon Mortgages, who arrange mortgages in the student division, explains: “Student property is appealing to landlords as they usually benefit from higher than average rental yields, as rooms tend to be let on an individual basis. And there are generally lower arrears, as tenancy agreements benefit from parental guarantees.”[1]

Knight Frank estate agents have compiled a league table of target markets for landlords, based on student numbers and outstanding demand for accommodation.

Knight Frank predicts an average 5% rise on student rents across the UK in the next 12 months. This figure is significantly than estimations for the mainstream lettings market.

“The winners will be prestigious universities amid a flight to quality, as students search for the best course for their fees,” says James Pullan, of Knight Frank.

He warns, however, that there will be a greater need for high-quality accommodation, due to rises in university fees: “The new rules will engender the rise of the student-consumer. They will be paying a great deal to study, and are likely to become much more discerning over housing.”[1]

[1] http://www.landlordexpert.co.uk/blog/2012/08/28/uk-buy-to-let-landlords-experiencing-high-returns-on-student-accomodation

Concerns over Universal Credit

Published On: August 29, 2012 at 4:33 pm

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With the introduction of newly proposed benefits scheme Universal Credit set for October 2013, landlords are beginning to express a number of concerns. Primarily, landlords are concerned that the new scheme will lead to an increase in tenants’ rent arrears.

Changes

At present, housing benefit is paid directly to landlords. Under Universal Credit however, this payment will instead be paid directly to tenants. Landlords have expressed that they are most worried about this part of the scheme, believing that not having a guaranteed payment from the Department for Work and Pensions (DWP) will lead to more missed payments. In addition, opponents to the scheme believe that some tenants will struggle further with budgeting and face a number of arrears.

Another concerning change proposed under Universal Credit is that unemployed tenants that find work will not receive any support until they receive their first wage packet. This has again led to an increased worry of spiraling non-payments.

Housing associations have also expressed their concerns. They believe that tenants in arrears, perceived or otherwise, may damage their credit rating.

However, the Government seems likely to keep their proposed plans for Universal Credit, believing that tenants will be able to take more control of their own finances as a result.

 

Landlords are Increasingly Getting Repossessed

Published On: August 29, 2012 at 3:52 pm

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In the first half of 2012, there were 18,100 repossessions. 19% of these were buy-to-let properties, up from under 10% in early 2009. Contrasting to these figures, the number of owner-occupied houses being repossessed has been declining since the beginning of 2009.

The repossession rate reached 0.24% for the first time in the buy-to-let market; this is the total number of repossessions in relation to the total number of mortgages. The repossession rate for owner-occupied homes was just 0.15%, down from 0.22% at the start of 2009.

Buy-to-let mortgage loans reached the highest number for four years last year, after a record level of rents have encouraged landlords to expand their portfolios.

Lending for buy-to-lets has grown from 5.5% of the mortgage market in 2005, to 12.6% this year. Loans on buy-to-let properties have also increased by 14% year-on-year. In the three months to June, £3.9bn has been lent, creating a total of £160bn lent on buy-to-let properties. The demand for rental properties is fuelled by potential buyers struggling to get mortgages as a consequence of the recession.

However, buy-to-lets have been among properties most at risk of repossession. The early to mid-2000s saw a considerable increase in the number of people becoming buy-to-let landlords.

A number of people with no prior experience of being a landlord opened the way and bought investment properties. These, and existing landlords could face two common problems. Tenants could potentially stop paying rent, or move out and landlords could find replacing them difficult. There could also be a need to pay for unexpected repairs to the property.

Landlords are Increasingly Getting Repossessed

Landlords are Increasingly Getting Repossessed

Neal Hudson, a researcher from Savills, has also said that contributing factors in repossessions include lenders lacking forbearance, and higher mortgage rates.

Predominantly however, Savills have stated that buy-to-let properties tend to incur high levels of arrears, due to non-payment by tenants, and landlords not delivering unexpected maintenance costs.

Professional landlords are more likely to manage their portfolios in a way that ensures coverage, should there be a sudden lack of income or required expenditure. Lack of finance for one property can generally be covered by income on other properties, or by an established back-up fund.

Many new landlords do not have an emergency plan in place to cover unexpected expenditure or a decline in income. Consequently, financial difficulties may build up in a short space of time.

Some courts also take a firmer approach to repossession in the case of buy-to-let properties. Judges could expect arrears to clear more quickly than on a borrower’s home. Borrowers may also be required to contribute towards arrears, over and above what they receive in rent. This is not a set rule, however, and it is advised that borrowers always explain why the arrears build up, and the efforts they have made in trying to clear them.

Repossession can occur of either the landlord’s home, or their tenanted property. In the case of their home being repossessed, this can occur when a landlord channels money into their buy-to-let property, and thus gets into difficulty with the mortgage on their own house.

Judges can be less sympathetic in these cases, as they expect a buy-to-let landlord is not in a desperate state, having more than one property. This could therefore result in a judge taking a strict approach in the repossession cases of a landlord’s home.

Where arrears have built up on a buy-to-let property, receivers may be appointed to administer the property and discover whether there are legitimate tenants in the property. If not, a repossession case may be started against trespassers.

In cases where a borrower has used an ordinary residential mortgage on a buy-to-let property, any tenants placed in the property by the borrower will almost definitely be unauthorised. Unauthorised tenants are likely to have no right to remain in the property upon receiving repossession proceedings and eviction. They may, however, have a contractual agreement with a landlord, and could potentially take separate legal action against them, to recover any rent they have paid, or to compensate for the loss of their home.

More information can be found at housingrepossessions.co.uk.

 

Malicious Damage a Common Problem

Published On: August 29, 2012 at 2:39 pm

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Malicious damage to their rental property features in the top three most common insurance claims by landlords, Total Landlord Insurance has revealed.

The company have analysed claims from the last two years, and found that those made in regard to malicious damage add up to £700,000. Tenants cause most malicious damage.1

Malicious Damage a Common Problem

Malicious Damage a Common Problem

However, lots of landlords are not protected against malicious damage in their cover.

CEO of Total Landlord Insurance, Eddie Hooker, explains: “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.”

It has been revealed that there are significantly more claims for malicious damage than for accidental damage, which comparatively amounted to £50,000.1

Claims for malicious damage feature broken windows, trashed properties, and deliberate theft or fire of the building’s fixtures.

Hooker continues: “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.”1

In response to their findings, Total Landlord Insurance is enlisting the advice from industry experts. Paul Shamplina of tenant eviction specialists Landlord Action, and Accommodationforstudents.com’s Simon Thompson will appear in their next live web show.

The show is scheduled for 30th August at 7pm, and will discuss dreadful tenants and finding the best tenants.

1 http://www.landlordtoday.co.uk/news_features/Malicious-damage-by-tenants-a-common-problem-says-insurer-

 

 

Tenants Stopped from Switching Energy Supplier

Published On: August 29, 2012 at 11:13 am

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One in ten renters have been unlawfully stopped from changing energy suppliers by their landlords or letting agents.

uSwitch has found that 3% of private tenants have been told that they cannot swap because of limitations on their tenancy agreement, alongside 7% being told that they were not allowed, by their landlord.

A rental contract is permitted to instruct a tenant to ask their landlord’s permission before switching supplier, however, consent must be given.

uSwitch’s research also revealed that only 38% of private tenants have changed to a cheaper energy supplier, while one third are not aware of their right to swap, and one third do not find it necessary, as they will not be in the property long-term.

Tenants Stopped from Switching Energy Supplier

Tenants Stopped from Switching Energy Supplier

uSwitch urges however, that changing energy supplier can save up to £420 a year.

Some tenants are not keen to approach their landlord on this topic, with 22% of renters saying that landlords do not want to be disturbed by their tenants.

26% also said that they wouldn’t ask their landlord about energy efficiency, because they do not think the landlord will be concerned. One in ten tenants would not feel relaxed mentioning the issue to their landlord.

However, over four in ten private tenants state that their current rental property has little or no energy efficiency measures installed.

Director of Consumer Policy at uSwitch, Ann Robinson, says: “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; 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 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.”1

Schemes currently available:

  1. Warm Front: Warm Front is only available within England, and installs insulation and heating measures for people receiving particular disability or income-related benefits. The scheme is accessible for those renting privately or who own their own house.
  2. Carbon Emissions Reduction Target (CERT): The main energy suppliers (British Gas, E.ON, EDF Energy, RWE npower, Scottish Power, and Scottish and Southern Energy) deliver free or inexpensive energy efficiency measures, particularly loft and cavity wall insulation. All properties within Great Britain could possibly be entitled for help under the CERT, however the most vulnerable people, for example the elderly or those on low incomes, are given priority. Tenants and homeowners can apply, although landlords must give approval before work is done on rental properties.
  3. Community Energy Saving Programme (CESP): The key energy providers are supplying free or low-cost energy efficiency measures, including solid wall insulation, to houses within low-income areas. You can find out if your location is eligible at http://tinyurl.com/9xw2ed3.

1 http://www.landlordtoday.co.uk/news_features/One-in-ten-tenants-illegally-stopped-from-switching-utilities