UK Rental Market Update: Insights into the Current Landscape

Welcome to our Property Market blog, where we provide you with comprehensive insights into the current trends shaping the UK housing market. In this edition, we'll dive into key headlines of the current Rental Market - including supply and demand dynamics, challenges faced by investors, rental growth versus earnings, and regional snapshots. Let's explore the latest findings!

 

- Annual rental inflation for new lets in the UK remains high at an average of 11%, slightly down from 12.3% in mid-2022.

- Rental growth continues to outpace earnings growth, raising concerns about affordability for renters.

- The demand for rental properties remains significantly higher than the five-year average, while the supply of privately rented homes in Great Britain has seen a minimal 1% increase over five years.

 

Supply and Demand Imbalance:

- The stock of homes available for rent is 33% below the five-year average, highlighting the significant supply and demand imbalance.

- According to the recent ARLA Propertymark Report, the demand for rental properties recorded by member agents in April 2023 was 24% higher than the previous year, further exacerbating the supply shortage.

- Factors such as rapid growth in overseas students and high net immigration contribute to sustained demand for rental properties. This follows the Government shake-up of Visa rules in 2021 to help attract more skilled workers to the UK.

 

Challenges for Investors:

- The number of privately rented homes has only increased by 1% since 2016, as new investment is offset by properties leaving the rental sector.

- Tax changes, growing regulations, higher borrowing costs, and tighter lending criteria have prompted landlords to reassess their portfolios and investment strategies.

- Mortgage rates have increased, impacting the equity or deposit levels required for new buy-to-let purchases, along with stricter lending criteria and stress tests.

 

Rental Growth and Existing Tenancies:

- Existing tenancies have seen rental increases at an average of 4.4%, significantly lower than the market average for new tenancies.

- Landlords are encouraged to review their rents periodically, especially considering challenges such as tax changes and higher mortgage rates, as rent increases can positively impact investments.

 

Breakdown of the Private Rental Market:

- The core private rented sector, comprising long-term lets, accounts for 66% of the market, offering lower hassle and workload.

- Sub-sectors such as holiday and short lets or HMOs may provide higher yields but come with additional costs, workload, and regulations.

 

Regional Snapshot:

- In the West Midlands region, average rents have seen a year-on-year increase of just under 10%, with Birmingham ranking among the top five cities for rental growth.

- Manchester, Edinburgh, Glasgow, and Nottingham also demonstrate strong growth in rental prices.

 

Conclusion:

The UK rental market continues to experience robust demand, outpacing earnings growth and raising concerns about affordability. The supply shortage persists, presenting challenges for both tenants and landlords. Investors face changing dynamics, including higher mortgage rates and stricter lending criteria. Regular rent reviews are encouraged to ensure investments remain financially viable.

Thank you for reading our Rental Market Update blog. If you are a landlord or property investor and would like some advice or to share your views, please contact me anytime...

 

Ali Durrant MARLA

Director of Concentric Sales & Lettings 

ali@concentricproperty.co.uk

Landlords Heading To Liverpool As The City Property Market Booms

A new report has revealed Liverpool is the place to buy for landlords – but anyone looking to add to their portfolio should act quickly, as property prices are on the up faster there than in other locations.

The report (commissioned by London’s Beauchamp Estates and Liverpool’s Logic Estates, with analysis by Dataloft) describes the city as a ‘regional powerhouse’, stating residential property prices have risen more quickly than anywhere else in the last five years – including the capital.

But this surge shouldn’t deter potential investors, because prices there are still affordable compared to other key locations. The report looks at the Liverpool Waterfront, where an average-priced apartment would cost just under £240 per square foot. This compares to around £353 (per square foot) for a similarly well-positioned property down the road in Manchester and £678 (per square foot) in London.

Buy-to-let landlords are also collecting higher rental yields – with an average of 6.4% across all apartments in Liverpool, compared to 5.5% in Manchester and 4.5% in London (of the cities included in the survey, only Leeds saw a higher rental yield for all apartments, sitting at 6.7%).

And there are also seemingly more renters to attract – 55% of the city’s population live in private rented accommodation, compared to 27% in the capital and 17% across England as a whole.

However, while this report extols the virtues of buying in Liverpool, it’s worth noting that there are multiple favourable locations which have emerged as key investment hotspots in recent reports.

The Buy To Let City Tracker research undertaken by Aldermore Bank saw Bristol top the list of best places to purchase an investment property, based on indicators including average total rent, short and long-term returns, percentage of vacant housing stock, and number of renters.

Second place was Oxford, with Cambridge coming third, followed by Manchester and Luton to complete the top five.

And in a third piece of research – this time conducted by Compare the Market – Birmingham topped a list of the 20 best places to be a landlord in the UK, with Bradford, Coventry, Bolton and Burnley also making it into the top five.

Landlords- Selective Licensing Is Returning to Liverpool April 2022 - Are You Prepared?

Are you a landlord in Liverpool? 

If so, are you aware that in April 2022, selective licensing is returning to the borough? 

Today, we’re going to talk about what this change in legislation means, and the steps you can take to ensure that you remain compliant. Here at Concentric, our goal is to help landlords succeed by providing practical guidance surrounding each legislation update as well as helpful advice regarding overall best practices for landlords.  

What is Selective Licensing?

Selective licensing simply means that the city council has decided that they are going to selectively license a specific area. Thus, selective licensing in Liverpool means that the Liverpool City Council has agreed to selectively license a group of postal codes within the borough. In order to determine if this impacts you, you’ll need to see if you own any properties that fall within the range of postal codes that are covered by this new legislation. If you are a landlord in this area and you have a property from a one-bedroom flat all the way to an HMO, you may need a special license in order to continue letting that property.

What Does This Mean to You as a Landlord?

Now, we’re going to talk about what you need to do when selective licensing comes into place in Liverpool. Practically, this means that any property you rent that falls within the impacted area will need a special license as of April 2022 in order to be compliantly let. So, you’ll have to head to the Liverpool City Council and file applications, when the process is opened, for these licenses. There will be a cost element to this. You’re going to need to pay a fee to the Liverpool City Council in order to make the application for the license. Selective licensing is going to continue within Liverpool for the next 5 years until 2027.

Official guidance around the new law is still evolving, so we don’t yet know what the cost of licensing will actually be when selective licensing is rolled out. However, through experience with past licensing programs, we do know that there are many ways to secure discounts and reduce the licensing fee. This can be done by maintaining a good EPC rating, using accredited agents, and through other strategies. We recommend keeping an eye out for further updates on the Liverpool Government website. This is also the place to be when the application process opens for selective licensing. If you need help, contact us and we can help you with licensing applications.

How Do You Stay Compliant?

As of the time of this writing, the details of what will be specifically required to be compliant with this new legislation are not known, but we do know the general standards that have to be met in order to be compliant. There are a number of ways you can take care of your properties and ensure that you are always remaining compliant with the law. We’ve listed a few of them here:

  1. Have a valid gas certificate

  2. Have a valid electricity certificate
  3. Ensure that your EPC ratings are at ‘E’ or above
  4. Have your smoke alarms and carbon monoxide detectors tested
  5. Ensure that your property is fit for habitation

By following these main steps, you can be confident that your property is already a long way towards full compliance. Previously, when the Liverpool City Council enacted selective licensing, they added some additional requirements. This was in 2015. They required things like changes to the tenancy agreements to incorporate anti-social behavior clauses as well as adequate refuse management at properties. Thus, additional requirements may also be a part of the new selective licensing law.

It’s important to remember that the purpose of selective licensing is to regenerate areas and make the private rented sector the best that it can be. If landlords take good care of their properties and ensure that their tenants use the property responsibly, you’re ahead of the curve.

Licensing in the Private Renting Sector is Serious

Most landlords are probably already aware of the importance of remaining in compliance with all of the relevant laws. The penalties for not doing so can be immense. Failure to comply with selective, additional, or mandatory licensing as a private landlord can result in penalties up to £30,000. If your property falls under the category of selective licensing after April 1st of 2022, and you are not in possession of the correct license, your rights to gain possession of your property could be negatively impacted.

We hope we’ve answered some of your questions about this important new legislation. If you’re a landlord in the Liverpool area and would like some additional information, please contact us and we will be happy to help you in any way we can, also we are running a live webinar on this topic, which you can register for HERE.

What's The Wolverhampton Rental Property Market Doing Right Now In 2022?

The landlords in Wolverhampton really started to embrace Lettings in 1990 after the change to the Housing Act in 1988, which introduced the Assured Shorthold Tenancy that we all operate under today, so what’s changed this year?

At that time, the Private Rented Sector was sitting at just 7% (7% of all properties being privately rented), but since then the market has grown fast.

Currently, 21% of the total housing stock is privately rented, which has come around due to an astounding level of growth, but in the last 2 years, this seems to have taken growth to an entirely new level.

We have seen masses of investors wanting to buy in the area, rents rocketing in price, and properties prices increasing to an unprecedented rate.

So, what does all this mean for Landlords in the PRS now?

As you can imagine we get asked a lot of questions daily, so we decided to answer the most common questions and put them here for you.

We also decided to look at our stats over the last 2 years (2020 and 2021) and interview Ali Durrant, our Branch Manager on the ground in our Wolverhampton branch on what he has seen over the last 24 months and in particular the beginning of this year (2022).

Here are our findings on the Lettings Market in Wolverhampton in 2022...

 

Where are the biggest demand areas in Wolverhampton from tenants right now?

We are seeing the biggest demand we have ever seen in history for rental property, in January, we were getting upwards of 50 pre-applications per property, it was crazy! So much so we had to build an automation system to deal with the hundreds and hundreds of tenant calls coming inbound to the office every day, it was chaos!

With that in mind, it seems any property right now rents fast, but if we had to select the best areas (the most commonly asked for areas) it seems North and East Wolverhampton is winning (2022), being the WV10 and WV11 postcodes (Oxley and Wednesfield).

It’s also worth mentioning the close follow-up areas being asked for are Penn, Bilston, and Willenhall too.

 

What type of property is there a shortage of right now?

In these strange times, there is a shortage of all types of property at the moment, which means it really is a landlord’s market, but there does appear to be more flats and smaller properties on the market than the larger 3 and 4-bed homes.

This is probably due to our experience of lockdowns. Many tenants are looking for that little extra space now than they would have probably accepted before because we all craved more space in the lockdowns of 2020 and 2021.

 

Which area is attracting investors right now?

It seems a real mixed bag right now, probably due to the level of activity being higher than we are used to seeing. HMO investors are trying to find pockets where article 4 isn’t in operation and are picking up already active HMOs near the hospital (WV11).

We also have people looking for the cheaper areas to buy to try to maximise cash flow, as well as quite a few more professional type investors that are looking to opt for more quality professional areas, which would normally attract higher capital appreciation.

 

How much have the average rents gone up in the last 2 years?

Properties in the UK (outside of London) have on average gone up by 12.6% year on year, and we are certainly able to confirm this increase and in some cases more. We have had a lot of landlords reviewing their rents, albeit some may have not been reviewed for a couple of years, with some increasing by as much as £200 per month (25% increase). In some cases, 

our system shows rents have increased for us locally by nearly 15% over the last 12 months on average.

 

How much have property prices gone up in your market?

The average property price in the West Midlands region is £262k. The average price of a property, however, has increased by £23.4k (10%) over the last twelve months. The average price of an established property is £261k. A point to note; the average price of a newly built property here is £301k.

 

Is there a market for furnished or all unfurnished now?

We tend to find that with smaller properties, yes furnished still works as long as the furnishings are of good quality, however, for the larger properties (2 bedrooms or above), normally unfurnished is preferred.

 

What’s the most asked for feature in properties now by tenants?

Generally, the most common thing people seem to want now other than more space is en-suites in HMOs, they seem to have become an essential item, and as a result, are actually becoming very difficult to let without these, and for single lets, parking and/or driveways go a long way too.

 

What would you buy now if you were buying Ali? 

I would buy a 3 bedroom home in an average to the above-average area, such as WV6, WV4, or WV8. We see high rent return in these areas, longer tenancies with families, which means fewer voids and less maintenance. With that in mind, I would also consider a modern 2-bed flat within a couple of miles of the hospital subject to lease, etc to get into the contracted NHS worker market.

 

Are the landlords that are buying 1-time landlords or multiple investors?

We seem to be getting a lot of portfolio buyers at the moment, adding to their existing portfolio and seeking opportunities from the older 20-year landlords that are selling now due to their mortgages expiring and retiring.

 

What gives the best return in your area?

We find modern 2-bed flats can be picked up for a good purchase price at the moment as the bulk of demand is in freehold, you need to be aware of shortening or expiring lease terms or have a plan/allowance for that, but it does mean better purchase prices can be negotiated

Also, there are a lot of 3-bed semis that generate £800 - £900pcm which can still be picked up for around £175,000 in mid-range areas, giving around a 6% gross yield, easy solid rental units, longer-term tenants, and decent capital appreciation too, so good all-rounders which should stand the test of time.

If you have any queries, want to discuss anything in this article, or want to discuss buying property, just email me at wolverhampton@concentricproperty.co.uk  

Alternatively, you can schedule a complimentary call with me here.

What Is The Rental And Property Investing Market Like In Liverpool Right Now?

We have let thousands of tenancies, worked with hundreds of investors, and managed hundreds of properties, helping landlords navigate the local Selective Licensing schemes since their inception in 2015.

Like tenants, landlords and investors come in all shapes and sizes, have different levels of experience, and have different wants and needs, but there are a few questions that we get asked all of the time, and right now, it seems like everyone wants to buy property in Liverpool and the surrounding areas... and I can see why.

We have been instrumental in letting property in and around the west of Liverpool for over 10 years now, our focus; to work with the landlord investors in the area.

We have let thousands of tenancies, worked with hundreds of investors, and managed hundreds of properties, helping landlords navigate the local Selective Licensing schemes since their inception in 2015.

Like tenants, landlords and investors come in all shapes and sizes, have different levels of experience, and have different wants and needs, but there are a few questions that we get asked all of the time, and right now, it seems like everyone wants to buy property in Liverpool and the surrounding areas... and I can see why.

There's a lot of investment opportunity in the area with great property prices compared to many other city locations, and will generate fantastic income (and now capital) returns.

So, if you are thinking of buying a property in the area, here are a few questions you should be asking yourself.

 

What are the most in-demand areas from tenants at the moment?

The top areas that are most in-demand from tenants right now are Bootle, Walton & Fazakerly.

 

What sort of property cannot you get enough of? 

There appears to be a real shortage of 2/3 bedroom houses, maybe because people want more space or a place to work from home, we have all experienced being locked in, and a 1 bed flat can become less desirable. 

 

Where are most investors looking to buy at the moment? 

Most Investors are looking to buy property in Bootle & Walton, which ties in nicely with the increased tenant demands we are seeing. 

 

What rent increase levels have YOU seen in the branch? 

With rents across the UK increasing on average by 8.5% (according to Homelet), we have seen rents across the board here increase by at least 10% over the last year and in some cases a lot more! 

 

What property price increases have you seen in your area?

According to the Liverpool Echo, Liverpool has the fastest rising house prices of any UK city. This year is set to be the busiest for the UK housing market since 2007, with Liverpool topping the house price charts at 10.6% and some areas such as Toxteth maxing out at over 20% in just 12 months.

 

Are unfurnished properties renting better than furnished? 

We find that most properties rent better if they are unfurnished, that is unless they are a house share or student accommodation, then of course furnished is best.

 

What are the key features tenants are asking for right now?

Of course they still want the usual, a good location that feels safe, a nicely presented property that’s clean and has good access to facilities and transport, but this year we have seen a rise in tenants asking for gardens, and to be allowed pets (probably due to the experience of lockdown), and with HMO’s they really do all want en-suite facilities (due to becoming more germ aware). 

 

How many applications from tenants are you getting per property?

During most of 2021, we were seeing around 10 applications from tenants per property, however, this year it has more than doubled, we seem to currently (January and February) be getting up to 25 pre-applications for each property, it's gone crazy!

 

If you were looking to buy a property right now Elisha, what would you buy?

If I was to buy a property now, I would definitely be looking to secure a 3-bedroom terraced house for around £130k, generating me a monthly rent of around £750pcm which results in a 7% gross yield, because I know I could rent it over and over again with zero problems and get good quality tenants.

 

What sort of landlords are buying at the moment?

It seems all types of landlords are buying at the moment, from 1st-time landlords, those with 1 or 2 properties looking to expand their portfolio and large landlords alike, it feels like everyone is buying right now, it’s a very busy market, driven in the main by the huge increase in demand and the shortage of stock out there.

 

What’s the big challenge for the Liverpool market at the moment?

It has to be the introduction of another Selective Licensing scheme across Liverpool from April 2022. This is going to be an additional cost and more paperwork for those landlords in the areas affected, but we have been through this before with Sefton, so we are ready to support our landlords through it.

If you have any queries regarding any of the subjects covered in this article or want to learn how the introduction of the new Selective Licensing laws could effect you as a landlord in the Liverpool area, we're running and inviting you to a free-to-attend webinar on the 23rd March 2022 at 18:30. On the webinar, we will cover all the nitty-gritty details you should 100% be aware of.

Register for the webinar on the next page.

What Should You Look For When Buying A HMO?

Given the right area, investing in a HMO can be a great way to increase the yield of a property, and a way to boost your portfolio. But whether you are new to the property game, or are a seasoned landlord looking for a different route, what should you be thinking about when you are looking for a HMO?

About HMO’s

There are many reasons why landlords are attracted to the HMO market – in the right location, they can give a much larger return than a general family property, because they are leased as individual rooms or spaces rather than as a whole. This means that you are in effect renting out several dwellings in a property, rather than just one.

Generally, there will be two routes to get you there. You can either look at purchasing a property which is already set up as a HMO, in which case the layout is much less, or, you can look for a property where you can convert a property from a single dwelling/single use into a HMO. If you’ve got the money to put down in doing this, you are able to create the space however it works for you, geared towards a specific market, and can potentially make some more money selling it on as a HMO.

Traditionally thought of as student accommodation, HMO’s are also becoming more popular in affluent city centre locations, where rents are higher, and young professionals are looking to keep costs down by house-sharing.

So areas surrounding universities are still very popular, but also consider areas where young people are starting their careers, and perhaps might be searching out house shares while they are still single and forging their own paths. This also has the additional benefit of allowing landlords to seek out more expensive properties, which are more likely to have a higher yield as a HMO than as a family home.

What type of property makes the best HMO?

If you have no experience in the HMO market, you might think that you have to seek out a specific type of property for you HMO – something large, with a minimum number of rooms of bathrooms – but actually, that’s not necessarily the case. In fact, almost any type of property can be converted into a HMO.

Under law, a HMO is defined as being a home rented by three or more tenants who are not part of the same household/family. So in theory, even a small bungalow, for example, could be considered as a HMO, if shared by three people, providing the correct criteria are met.

The main things you’ll need to think about are choosing the correct location, and whether you have the vision and skill to make your property work as a HMO. Location should always be the key factor.

Do I need a HMO licence?

In most cases, yes, you will need to apply for a HMO licence. Currently, the criteria are:

Any of these will require you to hold a HMO licence, although you should always check with your local authority, as some areas have slightly different rules.

Are HMO’s harder to maintain?

HMO’s are usually rented by students or young professionals who typically are looking for short-term accommodation, whether that’s based on the academic year, or the term of a work contract etc. As such, you will normally find that your HMO turnover, in terms of tenants, is higher than it would be for a normal dwelling.

While that might mean that you’re more likely to fill the property quicker, it also means that due to the temporary status of the accommodation, your tenants are less inclined to put their efforts into general maintenance of the property, and this means that you will have to put more time, effort, and money into cleaning up after they vacate.

As well as this, the shared areas, such as kitchens, bathrooms etc. will have a much higher general usage than in a normal house, so there will be much more wear and tear on things like carpets and flooring, furnishings, and appliances.

It’s worth considering, if you’re thinking about taking on a HMO, that they do require more upkeep on a regular basis, and so those expenses need to be taken into consideration.

Converting into a HMO – is it worth it?

If you are in an area where demand for shared accommodation is high, and you’re thinking about converting a property into a HMO, there are some factors to consider.

You will need to ensure that the property has adequate space for your tenants, and is safe, clean and habitable. You will be subject to spot-checks by the local authority, and any failures in standard could lead to your licence being revoked, as well as a hefty fine.

Also consider whether you will want to make use of spaces such as living rooms as additional bedrooms – many landlords do this to maximise the rooms they can rent, but it’s also important to consider the communal areas – is there adequate living space to allow for an area for your tenants to gather and sit? If you have a kitchen diner, you might want to use the dining space for a lounge or seating area for them to relax.

If there is a garage attached to the property, there is possibly scope to add another room/bedroom. But you will have to seek planning permission, so get advice from your local council before doing this.

Build To Rent

In recent years, there has been significant growth in the build to rent sector, which reports suggest will see heavy investment over the coming months and years, as the demand for privately rented properties hits an all time high. So, what exactly is the build to rent phenomenon, and could it be a threat to private landlords in the UK? Let’s take a look.

Build to rent explained

We’ve seen for a while now that the home-ownership rates have been falling, as people are finding it much more difficult to secure a mortgage, and indeed save for a decent deposit to buy a home. Alongside this, factors such as population growth, changes in the economic landscape, and a shift in people’s perception of the rental market have all contributed to the recent demand for more privately rented housing, not least so in the social housing sector.

While this has been a good thing for landlords, we’ve also seen some major changes in legislation, brought in to protect tenants, but which has left a lot of landlords wondering what the future holds. And there are some big players who have caught on to this, making build to rent an attractive option.

Following the announcement back in 2017 by Sajid Javid about plans to reform the housing sector by building new homes to keep up with the huge demand, we’ve seen a lot of new properties spring up in cities, towns and villages all over the country, and this is one of the key things that has allowed the build to rent movement to take such a big leap forward.

Rather that homes being built to be bought by landlords looking to rent them out, it has given the opportunity for companies to invest in properties built specifically for the rental market.

Corporate clout

There are some big players putting up the money for build to rent projects, and the worry is that the average landlord isn’t going to be able to compete with such competition. Remember that changing tenant perception we mentioned earlier? People in general have a much higher expectation when they’re looking for homes, because whereas before rentals were perhaps seen as a temporary move while they saved for their own home, rental properties these days are more permanent. And so tenants need homes that will allow them to grow, raise a family, and do so with all of the convenience and comfort expected in a modern home.

In this, landlords have a much higher standard to live up to – you can no longer get away with poor décor, inadequate kitchens and bathrooms, and shoddy finishes. Your tenants are looking for longer-term accommodation, and so will need a home that will stand the test of time.

And this is really where the corporate investors are able to put their money down and give the tenants what they need. Where does that leave private landlords, though?

The options for private landlords

It’s been estimated that a massive £75 billion will be invested to the professionally managed private rented sector in the UK by 2025. That’s due to the growing demand for housing across the country. It’s a big number, and it’s even bigger if you consider that right now, there are huge numbers of individual landlords exiting the property market.

Lettings is an increasingly difficult industry to be in, and it’s tough for landlords. There’s no denying that. And yes, there are landlords out there who are struggling, who can’t keep up with the changes in legislation, and are taking a huge hit in income after the introduction of the Tenant Fee Ban earlier this year. But for those of us who are fighting through it, and despite everything, are determined to maintain growth and make thongs better for our industry, what does the future hold? Are we doomed to be held at ransom by these big companies?

Well, I doubt it – and here’s why.

On the whole, the build to rent sector is aimed at a specific client. You’d find, in reality, that many build to rent properties tend to be either blocks of flats, which are quick to build (and therefore quick to start getting a return on), or small units of apartments aimed at people like students, single people, young couples, or the retired community (who typically downsize when they retire or are widowed).

That’s not, in most cases, the market we aim for as landlords. We know that our income mainly comes from the other end of the scale – those who are starting on their career path, and are growing their families. Those who are looking for a family home, where they can stay long-term.

So really, there are two possible options. And these depend on your long-term needs.

Investing

It might be that you’re in a position where you’ve either grown a successful portfolio, and are looking to expand your growth in other directions. Or you might see the benefit of selling up, and putting your money into something which gets you a guaranteed return for little effort.

And yes, there are benefits to investing in build to let, if you’ve got the funds to do so. Perhaps you are one of those landlords mentioned earlier, who are seriously thinking about exiting the market in this difficult new landscape. In which case, placing yur cash in something like build to rent could be a viable option.

Sticking with the current market

Your other option, of course, is to put all of your efforts into that portion of the market you know so well. If you still have that passion for the game, and are prepared to ride out the changes, evolve with them, and push through in order to grow your current portfolio, then the option to stay true to yourself and stay on your chosen career path is what you need to focus on.

I think it’s vital that there are landlords still prepared to cater for this niche, as there will always be the demand for good, well maintained, family homes. And that’s really what we are here to deliver. And if we can do that with professionalism and a personal service, then we are doing justice to our industry.

Are Flats A Better Investment Than House

With legislation getting tighter and tighter within the lettings industry, the debate between landlords on whether to invest in houses or flats is back on the agenda. So where is your money best placed? The answer isn’t as straight forward as you might think – let’s take a look at some of the pros and cons for each.

Spot the difference

Some people might tell you that a new trend is emerging, and that many landlords are favouring flats over houses because they tend to give a higher yield in an increasingly difficult market. And they’re not entirely wrong – flats are cheaper to buy than houses, and therefore can bring in more cash in rent – there are other things that you might want to consider.

You might be attracted to investing in a flat based on the higher yield, the lower purchase price, and the ease of maintenance, which are all very valid. But bear in mind that a flat is a very different animal to a house – and therefore requires a different set of management skills.

Flats – the advantages

Typically, you will find that the purchase price of a flat is lower than a house, in fact in the right area, you could be looking at a saving of up to two thirds of the cost of a house. Of course, this means that yields will be much higher, increasing your profit margin.

The market for flats is very different than for a house – so if you are in an area where there is a demand from single people, young professionals, or even young couples who are looking to start out with a small, affordable property, then that’s who you need to be focusing on when you’re looking for a tenant. Cost of living has risen over recent years, which has increased demand for these types of properties.

You can save money in maintenance costs, as in most cases, the freeholder or management company will be responsible for the upkeep of flats and communal areas.

Flats – the disadvantages

You might find that lenders are less willing to finance flats, due to a higher risk. On top of this, flats often have a higher turnover of tenants as they are often taken by single people, who then move on when they find a partner, or young couples who move out when they start a family, and thus need somewhere bigger.

Due to that higher turnover, there is the added concern of having to go in and clean up and redecorate more frequently, so that you can attract new tenants. However, flats are less likely to be empty for long, which is a positive.

Unlike houses, you have less freedom to make significant alterations to a flat, and so it might prove very difficult if you are looking to increase the value for sale. Other than general modernisation, such as kitchens, bathrooms, and windows, unless the flat is in desperate need of modernisation, you’ll be stuck if you are investing for profit. In this case, the value really is all in the rental yield.

House or flat?

Whether you invest in a house or a flat really is down to your particular circumstances, the area you are in, and the amount of money and time you are able to invest. Flats can be great money-spinners, as long as you know what you’re going into, do your research, and are prepared to put the work in to find the right tenants. Where the market for flat might be smaller, more niche, and less long-term, having them as part of a healthy portfolio, along with family-friendly houses, can pay off in the long term.

A quick guide to converting HMOs

With property prices ever increasing and successive governments taxing income from property more and more each year, landlords and property investors are often  turning to houses of multiple occupation sometimes known as HMOs for higher rates of return.

So why do HMO give landlords and property investors a higher rate of return?  Well essentially this is down to the fact that HMO properties are rented out by the room rather than as a whole property. 

So how do you achieve these higher rents and higher rates of return? 

What you do is you create a situation for individual single tenants where the rent is affordable. Note the word affordable here. We're not saying that it wouldn't be cheaper to rent a whole property if you were say in a couple or in a group but if you are renting on your own and have no one to share the costs with then renting a room in a shared house will ultimately be cheaper.

So what creates an attractive proposition for such a single tenant? 

Well I would say first of all it is having a room in a house which is literally ready to go. Nothing more required than bringing your own small possessions and clothes and getting settled in.  

Why is this important? Because it keeps costs down and it allows people to move quickly. 

What this means to you as someone thinking of converting a property into an HMO is that you need to ensure that the rooms large enough to be comfortable and that the property is sufficiently furnished and well equipped - to all intensive purposes so it’s ready for someone can move into it in the same way they would a hotel room.

You also need to ensure the property that you are thinking of converting into an HMO is in a location which your tenants will want to live in. Please see my article on choosing the location  for are HMO for more details on this.

But what about the legal constraints for creating or converting an HMO?

You may have heard that there is a lot of legislation surrounding converting and running an HMO and you'd be right. Due to the nature of HMOs and the number of people that live in them, there are naturally concerns about ensuring that the occupants are safe and secure. Iit is no longer a situation where there is a single family unit where people are looking out for each other but instead 5 or 6 individuals and it can't be it can't be assumed that they are all cooperating in keeping the property safe.

So what can you do as a landlord to ensure that you stay on the right side of the law when converting a regular residential property to an HMO? 

Firstly I would say invest in your own education.  There are plenty of courses run by industry experts who will teach you everything you need to know relating both to the legislation and the practicalities of converting a property to be a compliant and functional HMO.

Secondly, speak to a local agent you have a working knowledge of he knows not just from a theoretical point of view from the practical experience of actually letting and managing them.  take it from me there a lot of different skills and knowledge required to safely and successfully let and manage an HMO.

Thirdly, don't underestimate the amount of time which managing as an HMO will take.  you may think at the outset it is just a large terraced house but if it is 6 bedroom HMO then in reality what you have are six houses with six separate tenancies 6 separate tenants 6 lots of questions problems rent to chase and other usual repair and maintenance issues.

As a landlord myself and having managed my own and families properties myself I can attest to the fact that whilst it is perfectly possible to manage one rental property what even 2 or 3 whilst holding down a full time job it is very difficult to manage any more than that and retain a healthy work life balance.  This is why I say to any landlords or property investors thinking of buying or creating / converting a property to an HMO, factor in the costs of professional management.

Is there any specific legislation which you should be aware of?

The short answer is yes lots but in a nutshell the main things you need to bear in mind or and this is in no particular order

For more help, information and advice about converting the residential property to an HMO what any other aspects of owning, letting or managing an HMO in Birmingham please contact us on 0121 405 0389.

ARLA comments on legislation coming into force affecting the Private Rental Sector

David Cox, managing director, Association of Residential Letting Agents, comments on legislation coming into force affecting the Private Rental Sector: “As of Thursday 1st October, it will be compulsory for landlords to have fitted smoke alarms on every floor of their property where there is a room used wholly or partly as living accommodation. They will also be required to put a carbon monoxide alarm in any room where solid fuel is burnt.

“We are entirely supportive of the aims of the regulation, but have recommended that the Government has implemented too strict a timeframe for this. However, despite our calls to reconsider the timeframe, following final scrutiny of the measures a few weeks ago, the deadline was not extended and landlords must comply by tomorrow. For those who have not yet fitted smoke alarms, we urge them to do all they can today to ensure that their properties comply with the new regulations that come into play.

“There are also some changes to Section 21 which will come into force tomorrow, looking at when Section 21 notices can be served; how long they will be valid for; what needs to be served with them, and hopefully a new prescribed Section 21 notice.

“On top of all of this, new retaliatory eviction measures will also be coming into force on Thursday, banning landlords from using Section 21 for six months where a local authority has served an Improvement Notice. At ARLA, we have provided factsheets to all our members on these changes and encouragement for anyone who don’t fully understand the regulations to get up to speed as quickly as possible.”