Brokers can add value to buy-to-let
Phil Rickards is head of BM Solutions
Buy-to-let has managed to stay top of the political and news agendas recently, no doubt in part as a result of Ed Miliband’s pledges to end “excessive” rent rises when he launched Labour’s campaign for the local and European elections at the start of the month.
While Miliband’s areas of focus have added further to the ongoing debates about the market, buy-to-let remains an attractive option for many tenants and landlords alike. As I have said before, the private rental sector fulfils a key housing need in the UK. While rents have increased in recent years, it has to be acknowledged that this has, in part, been driven by a lack of supply but also an increasing quality of rental stock brought to the market by responsible landlords. .
The latest BM Solutions and BDRC Continental Landlord Panel shows that a typical landlord – with between eight and nine properties worth around £1.2m – can now expect a gross annual rental income of more than twice the UK average pay. Earning almost £60,000 in rental income when the average UK average pay stands at £27,174, it’s easy to see why people continue to be attracted to the buy-to-let market above other, less tangible, assets.
While the average rental yield of 6.2% in the UK has remained relatively unchanged over the last 12 months, the average void duration has increased by three days to 62 since Q4 2013. Landlords with fewer properties are more likely to have to use their ‘day job’ earnings to cover the cost, but regardless of the size of the portfolio, having plans in place which take into account potential void periods should be a staple part of managing buy to let properties.
For current landlords and those considering the opportunities that this market presents it is, however, important to understand the financial and legal commitments being a landlord brings. Brokers can add real value here in ensuring clients undertake the right level of research and due diligence which will no doubt increase their chances of success.
This survey also highlighted the fact that two thirds of landlords rely on buy-to-let funding through mortgages when purchasing a property, which demonstrates the need to be able to efficiently manage a portfolio in order to ensure repayment commitments are met.
Eight in 10 (78%) landlords see their property as their pension, and the majority (64%) consider themselves as ‘professional’. Despite this, one in three still don’t have an exit strategy, financial or business plan or a formalised growth strategy in place. While this isn’t necessarily surprising, these are all things that brokers could also be discussing with their clients.
Working in this growing industry we are in a unique position in providing advice and products that support landlord in realising the potential of their investment. It will be interesting to see how Labour’s pledges to the private rented sector develop now the polls have closed.