Landlords from the private rented sector have been coming under fire recently due to the fact that many members of the public are finding it difficult to afford the increasing rent prices. However, the cost of rent is directly linked to the fact that there is not enough housing in the UK, and that landlords are more likely to be given loans to buy properties instead of first time buyers. However, this disposition towards landlords may soon change, as it was reported in The Independent today that the increase in private rental sector landlords will actually help reduce rent prices.
Rightmove has released its latest figures which state that the increase in landlords investing in buy-to-let properties will mean that there will be more affordable housing available to the UK public. Mile Shipside, director and housing market analyst at Rightmove said: “Buy-to-let investors, attracted by evidence of sustained demand and strong yields, will provide much needed supply relief to ‘Generation Rent’. A marketplace where landlords are achieving satisfactory returns will relieve some of the supply pressure in 2013, though the task seems to be falling on the comparatively rag-tag army of private landlords rather than more strategic institutional investment.”
The research has also shown that one in eight accidental landlords are now thinking of expanding their portfolios due to such good return on investment on their properties. Currently, around thirty per cent of landlords are accidental landlords, but almost forty four per cent are thinking about investing further in the buy-to-let sector this year. This will not only be good news for tenants, but also landlord insurance providers as they will also hopefully benefit from the increase in involvement in the landlord industry.
Shipside said: “In locations where property prices have fallen substantially or rents have risen more dramatically, landlords have invested and many seem willing to invest again. Some higher priced areas remain unattractive to the hard-nosed investor or risk-averse lenders. Those areas will continue to see the supply of rental property outstripped by demand putting further upwards pressure on rents. However, overall greater supply of rental property coming on tap is good news for tenants as it is likely to lessen the pace of rental growth in 2013.”
Accidental landlords and first time entrants into the property rental market are being warned about the dangers of not having the correct type of property insurance.
The warning comes after the continued financial downturn sees many people reluctantly become landlords when they can no longer afford to live in their own home and can’t manage to sell it. David Lawrenson works for a leading online letting agent and says many people coming into the rental sector look to keep their overheads to a minimum and don’t think long enough about the insurance they require. He said: “A general property insurance policy simply does not cut the mustard. It doesn’t cover all of the risks that would apply when you’re letting out a property. It is important to make sure that landlords have the correct level of cover. In most cases buy-to-let insurance is not much more expensive anyway.”
Of course the fact of the matter is that in many cases having the wrong type of insurance or not buying enough cover of the correct type of insurance is a complete waste of money. The homeowner will find that the insurance policy will be invalid and will be unable to claim at all. Proposed changes to the rules and regulations governing the private housing sector have been discussed in the last few days by Communities Minister Grant Shapps which would impose even more regulation on landlords. However, landlord organisations see this as a good thing as it may make the sector take a more professional outlook. Regulations concerning fire and other health and safety issues may be tightened and in return the obligations on tenants to respect a landlord’s property ensconced in law. In the meantime landlords across the UK must ensure they not only have the correct type of insurance to protect themselves and their business but also their tenant.
As more and more people turn to renting out their homes when they cannot sell, mortgage brokers warn they could find themselves paying higher than necessary interest rates if they don’t organise their change in circumstances correctly.
David Hollingworth, a director at mortgage brokers London & Country, says home owners should inform their loan company about their mortgage and their insurance provider about their property insurance if they don’t want to find themselves with higher bills.
He explained: “You must tell your mortgage lender before renting out your home. Otherwise you are breaching the terms of your contract. Banks have different policies, but it’s likely you will have to move on to a slightly more expensive rate. Before the credit crunch, banks were more relaxed about so-called ‘consent to let’. But these days borrowers can be refused outright, or charged a higher rate. Some lenders will not let homeowners rent out their property. The same applies to insurance; a conventional home insurance policy has to be changed to a landlord insurance policy.”
It appears that loan providers differentiate between the “professional” landlord who has many years of experience in the business and a portfolio of properties; and the “accidental” landlord who is renting out their home because they have little option. There is a definite difference in the rates available, probably because lenders see the accidental landlord has a less secure proposition. Unfortunately the accidental landlord will just have to grin and bear it a little longer if experts in the housing sector are correct. Most insiders forecast little change in the market for the rest of 2012 with the majority anticipating a drop in prices of around 2%.
United Kingdom homeowners who have properties that they are unable to sell because of the current climate, are being encouraged to become landlords until the market picks up.
Some property experts say that the previous increase in ‘accidental landlords’ was now on the decline, and they also say that the sales market is still slow, and there have been very few enquiries from potential purchasers throughout what is normally a busy spring and early summer months. The prediction for the summer and autumn of this year is that it is very unlikely that a significant improvement will be seen.
Homeowners who are struggling to sell are now deciding to rent, and in doing so are continuing the new breed of the “accidental landlord”. But while this will give a welcome increase in homes to rent, a lot of the new landlords are blissfully unaware of all regulations involved. They do not know, for instance, that there are more than 50 Acts of Parliament and another 70 sets of regulations governing the private rented sector and if they are not complied with, the landlords risk large fines. The onus is on the landlord whether they are accidental or not, to make sure they comply with all regulations and they will be held liable if something goes wrong, even when they employ the services of a letting/managing agent. It is no good claiming ignorance of legislation as a defence. Even having good buy to let insurance may be of no help.
Leaders (who carried out the research) Managing Director Paul Weller said: “Demand for rental property is stronger than ever and good quality properties are being snapped up by tenants as soon as they become available. Whilst the sales market is suffering, the rental market is buoyant because more people are choosing to rent for a number of reasons. People are still uncertain about the economy and are either unable or unwilling to commit to buying a property. Renting is a more affordable and flexible option as it does not require a huge deposit and it allows people to move on easily for work opportunities. We are seeing exceptionally strong demand for all types of properties in the areas we cover, from studio flats to large family homes, with many tenants choosing to extend their tenancies indefinitely. Vendors who were unable to sell could let for six months – or longer if it suits – until the sales market improved and in the meantime get a useful income from the rent”.
Leaders are advising any property owners that if this option appeals to them they should act as soon as possible as rental demand is high at the moment whilst property stocks are much lower.