While landlords may still be finding it easy to let their properties, with figures showing the number of buy-to-let mortgages is now as high as the third quarter of 2008 when rents peaked after a surge in the number of landlords, difficulty in renting and the associated fall in rental returns could lie ahead. In the autumn of 2008 rental income fell by as much as 20% in some areas of the UK. Rental income might have recovered fairly easily in London, the South East, South West, the Midlands and Yorkshire, but this wasn’t seen across the country as a whole and in some areas rental prices are still recovering.

Protecting Buy-to-let Investment when Competition Is High

Protecting Buy-to-let Investment when Competition Is High

Triggers to the fall in rent

In 2008 a rise in the number of accidental landlords, letting out their two and three bedroom homes, was largely behind the fall in rental income; as would be expected, increased supply was followed by an abrupt fall in rents. However, an oversupply has also been caused by a rise in the number of homes in multiple occupation (HMO), with rooms let on an individual basis, where yields of up to 10% are attractive to investors. In areas where supply is outstripping demand, room rental income is falling. Over the summer in some areas room rentals fell by 6-8% from just the previous quarter.

Successful rental with HMOs

While HMOs still offer a good investment opportunity, it is essential that anyone investing in this type of property monitors the supply and demand of this accommodation in the local area monthly. It is also vital that you are able to offer one better than your local competitors. The ability to offer tenants a bigger than average room with en-suite, as well as good communal facilities is a must. Even offering perks such as free internet and utility usage may be necessary to ensure your rooms remain
occupied to minimise void periods.

Preserving investment

The prospect of tighter mortgage lending to curb inflation and the potential for higher monthly repayments this may bring with it, may mean that falling rents would severely restrict the earning potential of property for some investors. Those able to purchase property that will always be in short supply, at a good price, to which they are able to add value, would be unaffected by the change. However, for anyone who purchases property indiscriminately or pricey new builds with little scope to add value, measures to control inflation of house prices could minimize returns. This would especially harm anyone looking to property as a pension investment. The key in this instance would be to select a property able to offer income and growth that are unrelated to inflation.

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