Rents rocket for 10th month in a row!

As rental income hits another record high, buy-to-let in 2011 looks set to shine

Rental income rose for the 10th consecutive month in November, hitting a record high of £692, the third month in a row that it has smashed the previous high.

That’s according to LSL Property Services, which owns national letting agent chains Your Move and Reeds Rains.

And it brings yet more Christmas cheer to landlords with its latest rental yield figures, which rose in November to 5%.

It’s not all great news though with the average total annual return declining as house price growth has petered out in the second half of this year. Total returns fell from a peak of 13.4% in May to 7.3% in November -- a typical investor entering the market now could expect to make a total annual return of £3,433 per rental property. Still not bad!

Most worrying for landlords though will be the tenant arrears figures, which have risen in the run-up to Christmas. Now 9.7% of all UK rent is in arrears compared to 9.3% the previous month. This totals a massive £231m in unpaid rent across the UK.

And with public sector spending cuts set to take their toll on employment and tenant finances in 2011, LSL fears that these arrears figures could get worse. It warns landlords that they must act quickly to nip potential issues with rent payment in the bud before they escalate. Of course, that’s easier said than done when your tenant can’t pay!

Reasons to be cheerful

All in all, 2010 has been a really positive year for the buy-to-let sector, providing it with a firm foundation from which to build next year. Rental income is up, tenant demand is up and the mortgage market is looking a bit brighter too.

The number of lenders has increased and the number of products has doubled compared to 2009 (albeit from a very low base). See the tables below for best buys or take a look at Buy-to-let mortgages that will make your eyes pop!

Mortgage lending is expected to be up 10% on 2009, and it’s set to improve further.

One of the country’s largest and longest-established buy-to-let mortgage lenders – Paragon Mortgages -- has just released its predictions for 2011, and they are pretty positive.

It reckons that gross lending will rise steadily next year, increasing by 10% to 15% on this year’s figures.

Plus the lender thinks that the strong tenant demand we have seen in the latter half of 2010 is set to continue, especially given the coalition Government’s planned changes to social housing.

The fact that first-time buyers will still find it difficult to get onto the property ladder will also help maintain, and increase, levels of demand over the coming 12 months (nb. If you are a wannabe first-time buyer and you are feeling glum about your prospects of ever owning your own home, check out Why you are better off renting).

But the lender agrees with LSL that the tenant arrears problem lurks in the background, with the expected rise in unemployment is set to make it even harder for tenants to meet their monthly rental payments.

Landlords rely on rental income to pay their own buy-to-let mortgages, meaning that tenant arrears could well filter through into landlord mortgage arrears. A robust rental guarantee insurance policy is one way to protect yourself against defaulting tenants.

Of course, you can also minimise your mortgage outgoings by refinancing to a better deal, or control them by shifting to a fixed rate.

Get a better mortgage

Paragon predicts a better choice of buy-to-let mortgages for landlords in 2011 as more new lenders enter the market.

2010 has already seen the return of Paragon and Kensington, and the launch of brand new lenders like Aldermore providing a bit of much needed competition to the sector.

For those who need security of payment there are now attractive two-year fixed rates available from sub-4%, while landlords looking for low monthly repayments can benefit from two-year trackers from 3.64%.

Below are some of the best buy-to-let deals on the market right now.

15 fab fixed rates

*London Interbank Offered Rate (0.73)

15 top variable deals

*London Interbank Offered Rate (0.75)

Use lovemoney.com's innovative new mortgage tool now to find the best mortgage for you online

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If you need help getting the best mortgage use our resources.

First, read this guide: Cut your mortgage costs

Next, watch this video: Getting through the mortgage maze

Then, why not have a wander over to Q&A and ask other lovemoney.com members for hints and tips about what worked best for them?

At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article. 

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.

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