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Mixed
messages and the Credit Crunch (July 2008)
Since
the start of the Credit Crunch there has been a huge amount written
and spoken about the Buy-to-Let industry. Much of that has been
contradictory and confusing, leaving many Landlords concerned about
the future of the
business they are in
To
give you some background, Buy-to Let is huge business in the
UK. There are over 800,000 Landlords who own
around 2.5 million
privately rented properties.
At the end of 2007, according to the Council of Mortgage Lenders (CML),
there were just over 1 million Buy-to-Let mortgages with a
total borrowing of £120.4
billion.
But, according to the Association of Residential Letting Agents (ARLA) only
7.3% of Landlords bought new properties in February 2008 compared with 29.5%
in February 2007. At the same time the National Landlords Association (NLA)
claimed that the average UK rent increased by 13% in the first quarter of this
year.
According to Paragon’s latest survey demand for rental
property is up,
whereas ARLA’s latest survey claimed that demand was down.
Another survey by market researchers BDRC found that 17% of Landlords had missed
a mortgage payment because their tenants had not paid them. The same survey
also showed that 44% of Landlords said that property would be their main source
of income in the future.
The Nationwide Building Society house price survey figures released yesterday
said that UK house prices fell by 0.9% last month and that prices were now
6.3% lower than a year ago. The survey also showed that whilst house prices
in Sheffield fell by 17% and Birmingham and Manchester fell by 9%, Cambridge,
Canterbury and Oxford all rose by 4%.
One fact is that there are fewer lenders offering far fewer mortgages. BM Solutions,
who claim to be the biggest Buy-to-Let lender, have cut their product range
from 20 to just 7 products since February. This mirrors the industry average
which has seen the number of mortgage products available slashed by two-thirds.
The march of bureaucracy in the industry also continues. Following
on from HMO Licensing and Tenancy Deposit Schemes, Energy Performance
Certificates become mandatory on all new tenancies from 1st October.
Landlords who fail
to comply can expect fines of up to £5,000, loss of right to operate
rental properties and even refunds of rent to tenants.
However, there has been a real growth in the number of Landlord Accreditation
Schemes and Good Landlord Schemes. Local Authorities have been encouraged to
work with the private rented sector as neither they nor national Government
can meet the demand for rented property without the private sector.
Through this fog one message is starting to emerge. Landlords
have to become more professional, more business-like in their approach. City centres are awash
with developments that were bought by unsuspecting first time Landlords who
were sold a promise of ever rising property values and an insatiable demand
for any type of rented property. Thankfully the companies who promoted this
myth are starting to go out of business.
What we are left with is an industry that is vital to the economy and
the housing needs of this country. Over 3.5 million people live in privately rented property.
There was speculation that as house prices dropped more people would take the
opportunity to jump on the house-owning bandwagon. That is not happening because
mortgage providers are not lending and the housing market is juddering to a
halt.
Landlords who understand the business are
beginning to buy more properties and expand their portfolios. At the
same time
other Landlords are beginning
to realise that being a Landlord can be hard work and certainly isn’t
the get-rich-quick-scheme they thought it was. These Landlords are starting
to sell up and it is the professional, business orientated Landlords
who will buy these and other properties and turn them into a profitable
investment.
Source: netrent.co.uk
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