Problems for buy-to-let landlords in competitive market

Permalink: Problems for buy-to-let landlords in competitive market
by Lin Freestone

Tempted by increased tenant demand and the possibility of buying property at bargain prices, buy-to-let investors are eager to add to their portfolios. Mortgage Works, a subsidiary of Nationwide, has conducted a survey of brokers which indicates that buy-to-let professionals are intending to buy more properties over the next year.

Tenant demand is strong, particularly for homes available to rent for up to £700 a month. Many of these tenants are would-be first-time buyers who do not have a big enough deposit to obtain a mortgage.

However, some analysts fear that a glut of available properties for rent could result in a fall in rental income. The rental market is being augmented by private landlords letting their homes because they cannot afford to sell in the current market.

Buy-to-let private landlords also face increasing competition from developers who are unable to sell their properties and rent out brand new apartments and houses, hoping to sell to their tenants at a later date.

This sudden glut in rental properties means that, despite growing numbers of prospective tenants, the amount being paid in rent is actually going down.

In June the average UK rent was £950 a month. After an increase in the number of properties available to rent, in July the average rent in the UK dropped to £850, and to £835 in August, according to figures from property-search website Globrix.

According to the Association of Residential Letting Agents’ research, the average rent paid nationally is £931 to £981 a month for houses and £619 to £664 for flats. In the South East the average rent is £1,361 a month for houses and £882 for flats.

Several agencies which specialise in property in the London area suggest that rents have fallen by more than 5% during the last three months due to an oversupply. Landlords are accepting lower offers, and tenants are able to afford to rent in areas they had previously considered to be out of their league.

Following the recent cut in interest rates to 3%, lenders removed a number of buy-to-let mortgages from the market and have yet to bring out new deals. Demand for buy-to-let mortgages is high but landlords are being frustrated by a lack of suitable products.

The increase in the amount of properties available to rent at a time when demand from tenants in some areas is likely to fall as unemployment takes a grip indicates growing difficulties for buy-to-let investors.