Why now is a good time to be a landlord

Landlords are enjoying a perfect storm of high demand, rising rents and falling mortgage costs.

Right now might not be a good time to be a first-time buyer, a home-mover or tenant. But there is one demographic of the property market that’s enjoying boom times: landlords.

Love them or hate them, landlords are a fact of life in the property market with buy-to-let making a number of people very rich over the property market boom years.

Let's take a look at why landlords are having such a great time at the moment.

A competitive mortgage market

The past few weeks have seen increased activity in the buy-to-let mortgage market. Just last week Skipton Building Society launched a competitive new range of buy-to-let mortgages while both Coventry and Leeds Building Societies cut the rates on their existing ranges.

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Buy-to-let specialist Paragon Mortgages launched some new fixed rate deals at the end of April, a month which also saw several other lenders including Northern Rock, Mortgage Trust, Lloyds and Santander, either enter or re-enter the buy-to-let mortgage market.

In fact, according to Moneyfacts, the number of buy-to-let mortgage deals available to property investors has reached its highest level since October 2008. There are currently 463 buy-to-let mortgages available, a rise of 55% on the 299 that were available in May 2010.

Furthermore, in a sure-fire sign that competition is returning to the market, as the availability of buy-to-let has increased, the average interest rate being charged by lenders has been falling too. The average rate on buy-to-let deals currently stands at 4.97%, down from the average of 5.30% a year ago.

Growing number of tenants

So, landlords have plenty of choice of mortgage products but what about tenants? Well, landlords are spoilt for choice in that department too.

According to the Association of Residential Letting Agents (ARLA), demand for rental property will continue to outstrip supply for much of 2011 and into 2012.

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Meanwhile nearly half of landlords reported that tenant demand rose during the first quarter of 2011, according to Paragon's latest Private Rented Sector Trends Report.

Experts say the increase in tenants is a result of several factors including social housing reforms, lifestyle choices and a low numbers of first-time buyers.

Would-be first-time buyers are making up the majority of tenant numbers at the moment. A lack of mortgage availability for first-timers, especially those without a decent deposit, means that they are forced to rent for longer.  And as rents go up, it’s getting harder for first-time buyers to save for a deposit – creating a vicious circle.

The high number of tenants means landlords can pick and choose who lives in their properties and opt for professionals with good jobs and decent credit records rather than tenants they are less sure about. In fact, landlords are increasingly turning down younger tenants and those on housing benefits.

Rents, yields and voids

The final bit of good news for landlords is that rents and yields are up while voids are down. Paragon’s latest research on the rental market found that yields were up to 6.2%, the highest level since the last quarter of 2009, while the average void period - how long a property is empty for - fell for the third quarter in a row to just 2.8 weeks a year.

Meanwhile FindaProperty.com reports that rental prices have risen 4.9% over the past year. The average monthly rent was £860 in March, up £40 from £820 this time last year, according to the website’s latest rental index.

Some tenants are even finding themselves getting gazumped. Normally associated with sales, this is where your offer on a property is accepted, but then subsequently rejected because of a higher offer by another buyer.

According to spareroom.co.uk, there are almost nine applicants competing for every room to rent in some areas of the country. London, Luton and Cambridge top the list for the cities where they are the most tenants vying for each room or rental property.

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