Optimism for landlords as demand rises
Private residential property Landlords in the UK are optimistic about future buy to let sector prospects as demand for rented properties soars.
Half of landlords, 49%, think it is a good time to invest, while just 1% believes now is a good time to reduce their portfolios, according to the latest survey from LSL Property Services.
It says that high rents mean rates would need to rise by 3.25% for the cost of average buy to let tracker mortgage to exceed current rental income and 68% of landlords expect tenant demand to grow in the next 12 months.
It also points out that mortgage finance remains the biggest obstacle for landlords, as 54% find it harder than a year ago although there are signs of improvement. Some 185,600 fewer first time buyers have entered the property in the last 12 months compared to the level before the downturn and the vast majority are remaining in the private rental sector instead. As a result, in the past three months, 52% of landlords have seen a rise in tenant demand.
‘Optimism among landlords is not only buoyant, but also increasing. Soaring rents and climbing demand from frustrated first-time buyers are not only making buy to let an attractive proposition for new property investors but are encouraging existing landlords to grow their holdings before property prices increase once more,’ said David Newnes, estate agency managing director for LSL Property Services, owners of Your Move and Reeds Rains.
Increasing rental income has improved financial security for long-term investment. The report indicates that rents now equal their all time high of £692 per month. As a result, landlords with mortgage finance have an average of £274 in rental income a month after mortgage payments, some £3,288 per year. The report says that this means that even if interest rates increase by 3.25%, landlords’ current rental income would be big enough to absorb the increase in the cost of a tracker mortgage on the average buy to let property.
‘Following the winter downturn, rising rental incomes are adding an increasing financial buffer for landlords. Landlords are taking a healthy sum once the mortgage has been paid each month. Many are taking the opportunity to either pay down their mortgage or expand their portfolio or are using the opportunity to build slush funds for rainy days or future higher mortgage costs. With the Bank Rate forecast to remain below 2% until at least the end of next year, landlords can expect to see rental payments rise without facing the burden of higher mortgage payments,’ explained Newnes.
However, the principal obstacle to expanding the private rental sector is ongoing mortgage finance constraints. Some 54% of landlords who have recently attempted to raise mortgage finance think it is more difficult to secure than a year ago. Some 48% of landlords who bought property in the past year were cash buyers.
The survey suggests though that there is some evidence that this situation may be starting to ease, with an increased number of new buy to let products on the market in recent weeks. As a result, while just 8% of landlords who recently secured a mortgage believe it is easier to obtain mortgage finance now than a year ago, this is an increase from the 5% of landlords who said the same a year ago.
‘The buy to let mortgage market is not going to spring back to its pre-downturn level in the foreseeable future, but there are signs that it is picking up slightly for investors. There is still a chronic lack of supply of rental homes, and it is crucial that lending criteria loosen to encourage professional investors into the market to grow the private rental sector,’ added Newnes.