Latest research figures published by LSL property services indicate that the rents have risen for the first time in 2011 going up by 0.2% leading to an annual increase of about 3.9%.

It is interesting to note that the average yield from buy to let investments increased to five per cent in February 2011, as the rent increased at a faster pace than rental property values during the month.

London continues to lead the pack and average rentals across London has gone up by 7.7 per cent in the last 12 months. This is almost twice the national average and the increase has surprised many analysts given the tight market that exists in London.

There are several factors that are contributing to such a consistent and steady growth of buy to let investment returns. The first time buyer market is far from recovery. Tight lending criteria, low LTVs and uncertainty in the job markets being some of the major factors. Many potential renters who ended up staying with parents or sharing accommodation are coming to terms with reality and now settling down as tenants for the medium term. Shortage of social housing is also continuing to fuel the demand. Until the lending market eases up a bit or employment situation improves, there will be steady growth in the buy to let market in the medium term.

While the news is overall very positive for buy to let landlords, the story is not that rosy in some areas. I have seen landlords who have large portfolio i.e. more than 40-50 properties but struggle to meet their mortgage payments on time. There are also smaller landlords who are struggling to let their properties. Keeping things simple, it boils down to two basic things aspects – location of the properties and whether the tenants are paying rents on time.

Latest figures show that landlords suffered setbacks in the shape of increased tenant arrears, with 12.6% of all UK rent unpaid or late by the end of February – an increase from 11% the previous month. Unpaid rent totalled £296m across the UK in February, up from £258m in January. Increasing rental arrears is a real risk for landlords. With increased public sector job losses and the continuing spate of redundancies in the private sector, landlords have to be very cautious on who they choose to let to. It is common practice now for landlords to reference their tenants and buy a good rent guarantee. However, some landlords I have come across, treat such risk management tools as unnecessary as they have never had a bad experience. There are in-numerable instances and examples and past is never a basis for predicting the future and hence my view is that landlords should increasingly adopt a belt and braces approach rather than just depending on their gut feeling and intuition.

Nevertheless, as the old adage in property goes – brick and mortar never fails… let us hope that the rental returns sustain at current levels. With some careful risk management, one can safely say that landlords are in for a good year in 2011.

 

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