Please Note: This Article is 7 years old. This increases the likelihood that some or all of it's content is now outdated.

This month the LandlordZONE® e-Newsletter addresses a wide range of the management issues which landlords face, as it becomes evident that many more new landlords are entering the letting market.

Landlording is a steep learning curve, and although property can be an excellent home for your money, and returns can look very attractive compared with current alternative investments, new entrants need to be cautious if they are not to experience initial problems and disappointment.

Success in the current environment comes from (1) researching the local market to make sure there’s good rental demand, (2) negotiating a good deal when buying, getting real value in a property, (3) managing tenancies properly, and (4) taking a long term view.

The outlook for property is clearly positive. With higher than expected growth in GDP output (0.6 percent in the services sector and likewise for the YTD figure) the UK economy not only avoided the feared triple dip, it looks set for a sustained recovery through this year into 2014.

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The better than expected GDP figures releases yesterday appear to justify recent investor confidence in housing. According to research carried out by Anna Mikhailova writing in the Sunday Times (21 April 2013) lenders are reporting a 20% increase in first times landlords as savers look for more innovative ways to get returns on their money.

With banks and building societies giving derisory interest rates which, even before tax, fail to match inflation, people are dipping their toes into the rental market. For returns which are at least respectable and at best well above inflation, with the promise of long-term income and capital growth to boot, property has a long track record of proving to be a safe investment.

However, another word of caution: for those new to landlording there are pitfalls – trips and traps that can turn a promising investment into a short-term nightmare for the unwary. New landlords need to do some homework, not only in choosing the right locations and properties to invest in, but ensuring that there’s good tenant demand wherever they invest. Not all locations are alike.

It is important to understand that property is a long-term investment and there are risks in the short term, such as rent arrears (higher during recessions) and bad tenants.

Selecting and managing tenants is a skill that landlords need to develop for themselves, or they should consider using the services of a good professional letting agent, at lease initially. Always use an agent that’s a member of one of the main agents’ professional associations: ARLA, RICS, NAES, NALS and preferably also members of the Property Ombudsman Scheme.

According to the Council of Mortgage Lenders, Buy-to-let lending accounted for 11.5% of total gross mortgage lending in 2012, up from 9.8% in 2011.

At £16.4 billion, gross buy-to-let lending was 19% higher than the £13.8 billion advanced in 2011, reaching its highest level for four years. On a quarterly basis, there were 36,700 buy-to-let loans, worth £4.6 billion, advanced in the fourth quarter of 2012 – up from 34,300 loans worth £4.2 billion in the third quarter, and 34,200 loans worth £3.9 billion in the fourth quarter of 2011.

Lenders typically required a minimum 25% deposit on buy-to-let loans throughout 2012, with an average minimum rental cover requirement of 125%. In terms of loan performance, 1.14% of buy-to-let loans ended the year in arrears of more than three months, compared with 2.03% of owner-occupier loans. On the other hand, the annual repossession rate at 0.48% was higher than the equivalent owner-occupier rate of 0.27%, reflecting the different considerations involved in the two sectors.

CML director general Paul Smee has said:

“Buy-to-let is benefiting from strong tenant demand, which is likely to continue. Loan performance compares favourably with the owner-occupier sector, and the overall outlook for the buy-to-let sector is positive.

“Landlords who can demonstrate a strong track record are in a good position to expand their portfolios. However, new potential landlords need to tread carefully before entering the buy-to-let market; considerations such as landlord licensing reinforce the need for potential landlords to gain a strong understanding of the legal and operating environment.”

CML will publish buy-to-let data for the first quarter of 2013 on 9 May 2013.

Our book review this month features a timely publication for landlords thinking about improving the energy efficiency of their older rental properties. There’s legislation coming along soon which will force all landlords to address these issues, so you should start planning now.

Old House Eco Handbook, A Practical Guide to Retrofitting for Energy-Efficiency & Sustainability is a great resource for all landlords faced with these energy conservation issues in older properties giving readers expert technical and practical advice on how to tackle them.

Tom Entwistle, Editor – April 2013

Please Note: This Article is 7 years old. This increases the likelihood that some or all of it's content is now outdated.
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