Landlords increasingly using rent to supplement income
With income levels remaining stagnant and disposable income being squeezed over 40% of respondents reported that they were using the rental income generated to support their monthly expenditure.
This is a marked shift since 2011 where the majority of landlords turning to the rental sector did so to prepare their finances for retirement. This fell from 84% in Q4 2012 to 78% in Q1 2013.
Phil Rickards, head of sales at BM Solutions, said: “The squeeze on spending does mean that we’re seeing more landlords using their rental income to supplement the cost of living.
“However it’s important that those entering the market continue to see it at as long term investment as well as considering short term requirements.”
Of those single property and portfolio landlords surveyed, 78% view their property as a supplementary income to their pension, with 7 out of 10 of these landlords actively planning to live off the rental income during their retirement.
Respondents highlighted the importance of a property investment to a landlord’s retirement provision, with property making up 62% of the average landlord’s retirement provision.
A further 4 in 10 intend to make a decision on their property portfolio dependent on the state of the property market once they reach retirement.
Very few (4%) portfolio landlords plan to sell all properties in their portfolio when they reach retirement.
Of the landlords who have previously looked at alternative retirement planning, such as fund investment, a large proportion said they selected the BTL market because they believe investing in property will produce a better return on their money.
Other reasons include providing an income, acting as a long term investment and offsetting against a poor pension performance.
Over the past quarter the average rental yield in the UK was 6.1%. In comparison, the average rental yield was 6.2% in Q4 2012, 6.7% in and 5.9% in Q4 2011.
Over half (57%) of landlords raising rents increased rents when new tenants arrived, and almost the same proportion (51%) inferred the reason for raising the rent levels was to bring it in line with local prices.
The strongest performing region was the North East achieving a return of 7.1%; conversely the weakest area continues to be the Yorkshire and Humberside which report yields of 5.6%.
The proportion of landlords adding property to their portfolio in the last quarter has increased by 3% to 15%.
However landlords are becoming much more selective on what properties to add to their portfolio with the average number of properties being added increasing, from an average of 1.6 in Q4 2012 to 2.5 in Q1 2013.
Looking forward to the next 12 months, just over 1 in 5 landlords plan to purchase at least one additional property.
Rickards said: “It’s good to see that landlords are still looking to add to their portfolios. It’s important to do your homework on Buy-to-Let in the same way that you would with any investment, being selective with your property choice isn’t a bad thing.”