Landlords are riding high, with the private rented sector swept up in a wave of high rents and low interest rates.
Demand for property is spiking, and rental income continues to rise. Here’s why things are looking up for landlords.
1. Demand is high
Tenants are snapping up rental properties more and more quickly. According to figures from Countrywide the average property is now on the market for just 12.7 days. In some particularly popular areas properties are only available for a matter of hours.
This sharp increase in demand has been attributed to an increase in the number of people struggling to get on the property ladder – often because property prices are too high, or because mortgage availability remains suppressed. Similarly, it is thought that many prospective buyers are holding off until the country’s economic situation becomes clearer.
2. Income is up
Rental income has been pushed up dramatically, thanks to this increased demand. Average rents have now reached £722 a month – significantly higher than the average mortgage, which is around £600.
While this is clearly very bad news for renters, many of whom have already endured real-terms pay cuts over the last three years, it is distinctly positive for landlords. Higher rental yields mean that properties can be better maintained (thus preventing expensive problems further down the line), mortgages are easier to secure, and void periods are easier to cover.
3. Interest rates are low
The Bank of England base rate remains at its historically low level of 0.5 per cent. This is good news for those with tracker or variable mortgages, who have been enjoying relatively cheap loans as a result.
It is important to understand, though, that interest rates cannot stay this low forever. It is now generally thought that rates will rise in either 2012 or 2013. But even then most analysts expect the hike to be small. Even so, you should ensure that you factor a potential rate increase into your financial planning if you intend to take on a variable rate mortgage.
4. Mortgage availability is up
Following a period of relative mortgage paucity, the number of loans being made is now beginning to boom. According to the Council of Mortgage Lenders there are currently some 1.4 million buy-to-let mortgages running in the UK. Around 16 per cent more mortgages were approved during the third quarter of the year than in the second.
This also reflects increased pressure on lenders to provide a more comprehensive suite of products for the buy-to-let market. Landlord groups have, for example, called on lenders to offer more remortgaging solutions for those who want to bring new properties into private rental.
5. …along with LTVs
Finally, as mortgage availability has increased the demands from lenders for huge deposits have begun to wane. A quick look at some of the deals currently on offer from High Street names shows that there is a decent range requiring a deposit of around 25 per cent.
You should remember, though, that buy-to-let mortgages tend to be more expensive than residential loans – and that the best LTVs are reserved for those with particularly good credit histories.