Commercial insurance article archive
'Unplandlords' changing the face of UK rental market
There have been continuing signs of change to the complexion of the rental market recently, as homeowners struggling to sell their properties have turned to taking on tenants, flooding the market and reducing rental prices.
It is a phenomenon that was highlighted by Gumtree.com last month, which dubbed these new proprietors "unplandlords".
The website reported that the average cost of renting a property fell by 2.2 per cent across the UK during the first three months of the year.
In some areas, the fall was much greater, down 3.6 per cent in London and six per cent in Oxford, which was the worst-affected area.
Television property expert Sarah Beeny explained online: "In the past two years more and more people in the UK are becoming landlords, whether it's because of recent redundancies, expanding families or an inability to sell at a level people wish to."
She said: "The current, unbelievably low interest rates also mean that people are not having to sell and can afford to move and rent out their current property to cover their mortgage instead."
"The property sales market is not going to bounce back as some imagine anytime soon and whilst interest rates stay low even though the rental market is slower than it has been, I suspect we will see more and more 'unplandlords' emerge," Ms Beeny added.
A survey by Gumtree revealed that 23 per cent of landlords said they had decided to lease their property because they had not been able to sell it for what they thought it was worth.
Furthermore, 81 per cent said they did not want to become a proprietor in the first place and many were found to be unaware of the necessary processes they need to go through as a landlord.
Of those surveyed, only 42 per cent said they had taken out home insurance while one in two had failed to draw up a legal contract for their tenants.
In addition, 46 per cent said they did not get a legally required gas safety certificate, less than half installed a smoke alarm, only 46 per cent requested references from tenants and almost two-thirds neglected to draft an inventory.
Research by the Royal Institution of Chartered Surveyors (Rics) has since backed up Gumtree's findings.
A poll of the organisation's members found that the number reporting rises in rent prices fell from -12 per cent in the third quarter of 2008 to -48 percent in the final three months of the year, the lowest level in the survey's history.
"The market place has become more and more competitive as reluctant landlords continue to look to let properties they are unable to sell. With property sales at historical lows, the rental market will continue to boom - provided unemployment levels do not increase significantly," said Jeremy Leaf, a spokesperson for Rics.
Demand for rental property is rising generally, jumping 15 per cent from January to February and almost doubling year-on-year, according to figures from Your Move, which could inspire more people to go down the rental route.
"If landlords can get finance, low interest rates, low house prices and a strong rental market makes now a superb opportunity to invest," asserted David Newnes, managing director of the estate agents.
However, Ian Potter, operations manager at the Association of Residential Lettings Agents, warns that investors need to do their research and suggests that the nature of competitivity is different depending on the area of the country.
Mr Potter says that Leeds has an oversupply of two-bedroom, new-build flats while Surrey's market is saturated with detached property, so serious investors would need to be aware of these trends if they are to go out and buy under current conditions.
"Buy-to-let has always been about buying your market in finite detail not just sticking a pin in a map saying: 'I'll take that plot'," Mr Potter explains and it seems prudent investment is going to be even more important as more and more ordinary British homeowners decide to dip into the rental market.
Alan Ward, chairman of the Residential Landlords Association, also confirms that local conditions vary and that the rental sector is always subject to market forces.
Mr Ward also warns that not all properties are suitable for renting and suggests that prospective landlords should consider their emotional attachment to the family home and be aware that rental accommodation tends to suffer greater wear and tear than owner-occupied ones.
Despite this, competitivity could increase even further in the coming months if interest rates remain low and savings returns continue to be sparse.
John Heron, managing director of Paragon Mortgages, has suggested that investing in property could potentially offer better profits than putting money in a bank account, as the company's recent Private Rented Sector report found that the average annual yield was up 0.5 per cent to 6.2 per cent in the first quarter of 2009.
"The outlook for house prices in the short-term is still uncertain, but yields are strengthening because tenant demand is strong and property investors are able to pick up bargains," he said.
However, Mr Heron said the increase in unplandlords will be in the short-term and will not boost the buy-to-let sector over a longer period as these reluctant proprietors are most likely to sell when the property market returns to normal.
"The expansion that the private sector needs is likely to come from existing landlords increasing their portfolios and new investors attracted to residential property because of the solid long-term returns," he claimed.
Meanwhile, as an influx of buy-to-let owners contributes to high numbers of rental properties, tenants are becoming savvy and demanding more from their contracts, according to one expert.
Chris Horne, editor of Property Hawk, said recently that it is a very good time to be an occupier and confident renters are looking to negotiate deals to get extras such as satellite television or even upgrades such as a new kitchen or modern appliances.
"Tenants are getting savvy in the respect that they are asking for a little bit more, knowing that a landlord is prepared to go that extra mile to attract a tenant and also to keep them in their property once the tenancy comes to an end and they need to renew," he concludes.
19 Jun 2009