06-06-2008
Is your buy-to-let giving you a migraine?
Given the downward trend of the housing market and the banks rescinding their low-rate mortgage products, it would reasonable to assume that buy-to-let investments are giving more than a few landlords a headache at the moment. Added to the everyday issues a landlord must deal with, such as bad tenants, property maintenance and void periods it might just turn into a full blown migraine!
Mortgage payment problems
Demand for rental property may currently be strong as first time buyers wait for house prices to drop before deciding to buy, however many landlords will be facing a hike in their mortgage payments as they come to the end of their fixed rate deals. This is especially the case with those properties that are highly geared across the portfolio.
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Although interest rates are currently set at five per cent, the banks are showing no signs of adjusting their own rates on mortgage products to match. As a result some landlords may find it more difficult than before to cover the cost of their monthly repayments. In such circumstances however, it is important that such repayments are met or at least the problem recognised and dealt with. The Council of Mortgage Lenders (CML) has stressed the importance of getting in touch with the mortgage lender before any difficulties get out of hand.
There are some solutions, however. Raising the rent for existing tenants approaching renewal of their tenancy agreement could cover a shortfall, although landlords should look at the local rental market to ensure that any rise is in line with the area. You could potentially justify an increase by providing new appliances or furniture.
If you have a portfolio of properties the answer may be to sell one of them which has some capital, and distribute the proceeds throughout the other properties, thereby reducing the mortgages. The new rate of Capital Gains Tax would enable a landlord to sell up with much lower tax losses.
The state of the housing market
House prices are on a slow but steady decline, which may cause landlords some sleepless nights. However those who are in the property investment game for the long-haul should not feel too worried. The trends over the years show that the market always bounces back eventually.
Paul Holmes of First Rung feels that the country may take longer to recover from this economical crisis. He believes that a full recovery could take as long as 15 years and that property prices might fall as much as 30% more over the next five.
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Undesirable tenants
Everyone hopes that a visitor to their home will treat it with the same love and respect that they would show it. Sadly this does not generally apply with tenants who are less house-proud because they know they will only be staying for a limited amount of time.
There are of course good tenants as well as bad, but it is the bad ones that landlords fear. Those that will make you wish you'd never given them the keys to the door.
There are solutions old and new to this age-old problem. It’s best not to start with a heavy handed approach – if the tenant hasn’t paid his rent for a month or two you shouldn’t send a hit man straight round to claim it back. The first thing to do is to communicate with the tenant. The problem might be an innocent mistake or due to unforeseen circumstances. Keeping the lines of communication open is considered to be one of the most important aspects of the landlord-tenant relationship.
If the tenant is refusing to pay, has damaged your property, or is refusing to leave there are legal routes to taking action. Check out Landlord Zone for more information.
In most areas of business there is now more transparency, especially online. This stems largely from the reviewing trend which allows one customer to read the opinions of another on a certain product or service. Property rentals are no different. A new service is now available for landlords and tenants to review each other. BadTenants.co.uk names and shames and in the future could be the first port of call for all landlords who are looking for tenants.
The site warns that "you will need to update your tenancy agreement that notifies [the tenants] that they may feature on this website if they violate your agreement. Please do not display tenants who have not been notified of this clause". However any good tenants should not be worried by this – in fact a good review could help them rent a property in the future.
There are also certain types of landlord insurance that protect you from some of the problems caused by tenants such as contents insurance and tenant default cover.
So, if your buy-to-let property is giving you a migraine, the best painkiller is found by taking action, making some preparation and face the difficulties head-on.