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The Money Centre's quarterly survey of landlords continues to go from strength to strength. Full results are available free to anyone who takes part in the online survey. However, for anyone who missed the opportunity; here's a selection of summer 2007's most interesting findings:
There's always controversy surrounding the housing market, and the buy to let sector is no exception - not least because it's a constantly changing market. These surveys allow us to take a closer look at the latest developments as they happen.
The interviewees
The landlord profile remains much the same as in the last report ( Landlord News issue 2/2007), with almost two thirds male and one third female. The principal age group ranges from 25 to 44, occupies socio-economic groups B/C1s** and an income bracket of £30,000 to £50,000. Respondents had an average letting portfolio worth £511,000 (up from £498,000 in the last survey), and 69 per cent had mortgage finance for at least some of their portfolio, with average outstanding at £187,500. The majority of landlords in the survey (91 per cent) let residential property only (with 17 per cent involved in holiday lets). Investors operate mainly in the UK , with London and the south-east voted top of the yield tables (central London : 44 per cent, outer London : nine per cent, and the south-east: 12 per cent).
Lenders and investors: a financial outlook
Buy to let has experienced such extraordinary growth rates in the past decade that lenders have responded by designing products increasingly geared to serve the investor. Consequently, it has become easier for landlords to secure mortgage finance. Now, however, the recent run of interest rate hikes has squeezed rental incomes. This has two main effects. Firstly, some landlords are finding their rents are decreasing in value in relation to their overheads, so it is no surprise to see that the latest survey shows a much higher proportion of landlords merely breaking even (42 per cent, compared with 19 per cent in the previous study). Secondly, lenders' criteria is tightening. Typically, the lender's preference is for the experienced buy-to-let investor and those with large portfolios. Nonetheless, property remains a favoured form of investment, with 69 per cent of respondents rating it so. Indeed, over the past decade house prices have seen a three-fold increase. In May 1997, the average house price was £74,000; in May 2007 its value had reached £220,000.
Property preference
As for the type of property, the standard choice is still for smaller units. Obviously, these are preferable to landlords as they are easier to maintain and demand is high among the target groups. Additionally, they avoid the necessity for a red tape-intensive HMO licence - a prospect that deters 63 per cent of respondents (although landlords with more than 20 properties are less liable to be deterred). Flats make up 50 per cent of all lettings property, and 69 per cent of let properties have only one or two bedrooms. Also, almost half of all landlords (46 per cent) bought at least some of their property in a ready-to-let condition. Low maintenance levels are a key criterion for one in three landlords when seeking new additions to their portfolios.
Tenant selection: making the right choice
The main problem presented by tenants continues to be damage, incurring an average cost of £1,360 a year. While not all tenants are destructive, it's axiomatic that nearly all properties need at least some redecoration or refurbishment at the end of tenancy periods, and 72 per cent of landlords own at least some property that requires remedial attention before being let. The experienced landlord will be prepared: it's an expectation to be factored in to all letting costs, given that the average tenancy endures for around 16 months (most tenants stay from seven to 12 months: 30 per cent, with 24 per cent staying for more than two years). Care in tenant selection is clearly vital, and may explain why the most common tenant type remains the white-collar worker or professional (42 per cent).
Property management
More than half of landlords surveyed used letting agencies (58 per cent). Approval ratings vary depending on experience, with non-users (42 per cent) being the most dismissive. Letting agents are used for: letting plus full management (22 per cent); letting and rent collection (18 per cent), and tenant introduction only (17 per cent). Most users (62 per cent) consider them to provide fair value. Of course, there are economies of scale and timescale: the larger the portfolio, the more likely a third party is engaged - 67 per cent of landlords with a portfolio in excess of 20 properties use a third party to save effort and time.
Pre-empting dry periods
Half of all landlords experience some void periods annually. The average length is from 15 to 30 days, and is usually covered by savings (42 per cent). But a minority of landlords use credit cards (15 per cent) or miss mortgage payments (8 per cent) to fill in the shortfall. These two figures show a significant increase - three per cent for credit cards, and four per cent for missed mortgage payments - over the previous quarter. This flags up a small but potentially worrying occurrence, both for investors and lenders.
Landlords' views on tenancy deposits
As for awareness of the Tenancy Deposit Scheme (TDS) - this is much higher, having increased to 63 per cent. Broadly, the opinion is favourable, with 54 per cent perceiving the TDS as beneficial for both landlord and tenant. As for anticipated involvement with The Dispute Service Ltd (the Government's insurance-based deposit holding scheme), 40 per cent are prepared to use it.
How do these landlords see their prospects?
Overall, the response is positive: according to the scale employed by BDRC, landlord optimism has risen by two points (from 71 to 73) since the last survey due to a bullish attitude to capital gains on properties owned. This optimism may also be attributable to most landlords being in the business for future gain rather than current return, with 52 per cent of those whose main income is not derived from lettings declaring that it will be in the future. Where letting is not the main business, 59 per cent designate it 'an investment for the future'.
Property as a pension fund brings active investor involvement, with almost 60 per cent of landlords motivated by the deal. 70 per cent chose their current mortgage because it was the best available on the market. However, the survey reveals a continuing trend away from selling to invest in other property (41 per cent, down from 51 per cent in the previous survey, and 67 per cent in the first). This is due to an increase in selling to access funds to live on (14 per cent, up from 10 per cent in the previous study) or to fund retirement (15 per cent, up from 10 per cent on the last study).
To continue? Only the next survey can tell.
* Research findings based on BDRC's landlords panel (518 interviews with a representative sample of privately letting landlords conducted between Feb. 7-16, 2007).
** GRADE B: Approximately 20 per cent of the total population (middle management and executives in large organisations with appropriate qualifications, principal officers in local government and civil service, top management or owners of small business concerns, educational and service establishments).
GRADE C1: Approximately 28 per cent of the total population (junior management, owners of small establishments, and all others in non-manual positions). Jobs in this group have very varied responsibilities and educational requirements.
