Landlords positive over buy-to-let prospects

Nia Williams

June 1, 2011

Of the landlords polled, 49% said that they believe it is a good time to invest while just 1% believe that now is a good time to reduce their portfolios.

The primary motivation behind the increase in confidence was attributed to the growing demand for rental accommodation. Some 185,600 fewer first-time buyers entered the property market in the last 12 months compared to the level before the credit crunch and the vast majority are remaining in the private rental sector instead.

The survey also revealed that in the past three months 52% of landlords have seen a rise in tenant demand and 68% expect demand to grow further in the next twelve months.

Increasing rental income has improved financial security for long-term investment. The latest LSL buy-to-let index show that rents now equal their all time high of £692 per month. As a result landlords with mortgage finance have an average of £274 in rental income a month after mortgage payments which equates to £3,288 per year.

The figures suggest that current rental income with a tracker mortgage is large enough to absorb a 3.25% increase in interest rates.

The LSL Property Services said that while the confidence amongst landlords is high, the principal obstacle that is holding back the expansion of the private rental sector is ongoing mortgage finance constraints. The survey revealed that 54% of landlords who have recently attempted to raise mortgage finance think it is more difficult to secure finance than a year ago.

David Newnes, estate agency managing director for LSL Property Services, said: “Optimism among landlords is not only buoyant, but increasing. Soaring rents and climbing demand from frustrated first-time buyers are not only making buy-to-let an attractive proposition for new property investors but are encouraging existing landlords to grow their holdings before property prices increase once more.

“Following the winter downturn, rising rental incomes are adding an increasing financial buffer for landlords. Landlords are taking a healthy sum once the mortgage has been paid each month. Many are taking the opportunity to either pay down their mortgage, expand their portfolio or are using the opportunity to build slush funds for rainy days or future higher mortgage costs. With the bank rate forecast to remain below 2% until at least the end of next year, landlords can expect to see rental payments rise without facing the burden of higher mortgage payments.

“The buy-to-let mortgage market is not going to spring back to its pre-downturn level in the foreseeable future, but there are signs that it is picking up slightly for investors. There is still a chronic lack of supply of rental homes and it is crucial that lending criteria loosen to encourage professional investors into the market to grow the private rental sector.”

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