News by Adfero for Simply Business
Frequently, the choice of whether or not to sell a house is not actually a choice at all. People need to move for work, they need to upsize, need to downsize - the list of reasons for moving is endless.
But with markets in the midst of a steep decline, the freedom to sell is being curtailed. Many are unable or unwilling to take a loss on their property. The National Landlords’ Association (NLA) claims this is leading to a “glut” of “reluctant landlords” who opt to rent their property out instead.
While this may be a positive experience for some, the NLA insists that so-called ‘accidental landlords’ must go into the letting business with their eyes open.
The NLA reports that the number of new instructions to let rose at the fastest pace since records began in the third quarter of 2008. The figures suggest a strong supply of rental properties, which the NLA partly attributes to the accidental landlord phenomenon.
Tamara Smith of flat and house-share website www.easyroommate.com has also observed the trend. She told the Sunday Mirror: “We’ve seen an increase in the number of new landlords. Either they need to move but can’t sell full-stop, or they won’t sell at a loss on what they paid, or they are struggling to pay the mortgage themselves.”
She added: “With the state of the market this year, I fully expect the number of first-time, or accidental landlords, to continue to grow in the months ahead.”
In addition, many in this category could have to rent for a substantial period to claw back the losses on the value of their property. In 2008 alone, both Nationwide and the Halifax reported a drop of around 16 per cent drop in house prices, largely due to constraints on affordability as lenders tightened mortgage borrowing conditions.
Commenting on Nationwide’s figures, Fionnuala Earley told the BBC that the downward trend is set to continue, claiming: “Prices have further to fall before significant numbers of buyers will be willing to return to the market.”
Richard Price, director of operations at the NLA, told the Sunday Mirror that the reluctant landlord trend was also witnessed in the last housing market downturn, noting that: “For many who were initially forced into the situation, it had a happy ending. Some of them are now successful landlords with many properties.”
But the NLA’s head of communications, Simon Gordon, stressed that there are risks involved.
He said: “Becoming a landlord in this market is not for the faint-hearted. New landlords, especially those who hadn’t planned on starting a lettings business, must make themselves aware of the rules and regulations so they can operate their tenancies successfully.”
“There is a major risk that inexperienced landlords, although well-meaning, are not fully up-to-speed with their responsibilities and problems can arise. The ultimate responsibility for operating the tenancy lies with the landlord and, although a good letting agent is worth their weight in gold, ‘reluctant landlords’ are obliged to be on top of their game.”
The NLA advises landlords in this category to check that their mortgage allows them to let out their property, and to make sure they have the correct insurance in place.
The organisation also stresses the importance of a written tenancy agreement, the need to comply with health and safety requirements, and to provide an energy performance certificate.
Tim Hyatt, head of residential lettings at estate agents Knight Frank, also sent out a warning to the accidental landlords sector. He told Landlordexpert.co.uk: “Contrary to what people might think, the lettings market is not busy across the board.
“As a landlord you have to be totally flexible and you need to treat the property as you would an investment property: it must be well-priced, neutrally decorated, and ready for someone to move into straight away.”
Mr Hyatt claimed that rents have now come down to 2006 levels due to the high numbers of properties available, reducing potential returns. He said Knight Frank’s stock of properties had doubled or trebled in some offices, attributing around 25 per cent of this increase to accidental landlords.
However, the rise of the accidental landlord does not mean the buy-to-let sector as a whole is suffering a dearth of experience. A recent survey of 200 mortgage brokers suggested that many would-be landlords have been discouraged from entering the market, while more experienced letters are expanding.
The Financial Advisor Confidence Tracking (FACT) index, compiled by Paragon Mortgages, found that the overall number of new landlords fell to 10.6 per cent of business in the third quarter of 2008, compared with 18.3 per cent of business during the same period in 2007.
Managing director of Paragon Mortgages, John Heron, told Mortgage Strategy: “The number of first-time landlords entering the market is at its lowest level and perhaps that is a good thing in the current economic environment.”
But for those in the sector who are new landlords, particularly where the decision was unplanned, poor economic conditions make it even more important to ensure the financial viability of the venture, and to meet all the relevant legal obligations.