Christina Jordan remains upbeat about buy-to-let investing in spite of all the regulatory hoops facing landlords.
If you decide to rent out a property there's a lot more to it than collecting the money from your tenants each month. The number of legal requirements for landlords seems to increase as each year goes by.
The latest rule change is that all landlords will be required to provide prospective tenants with an Energy Performance Certificate from 1st October, detailing the energy efficiency of the property. Failure to comply could result in a £200 fine and prevent landlords from marketing the property, which might mean unwelcome void periods.
But, according to Paragon Mortgages, over half of landlords (55%) are still unaware of the requirement, and The National Landlords Association (NLA) has said that the total amount of fines for UK landlords could exceed £500m.
It was only last year that `put-upon' landlords had to get to grips with the launch of the Tenancy Deposit Scheme, designed to help protect tenants' deposits by having them held in a separate account and allowing an independent third party to rule on any disagreements between tenants and landlords.
The scheme became mandatory last April, but a year on Alliance & Leicester conducted a survey which suggested that two out of five landlords were unaware of it and only a third had signed up to it.
On the first anniversary of the scheme mydeposits.co.uk, a Government-authorised tenancy deposit scheme that protects £177m of deposits, said that in 86% of the serious disputes it dealt with the tenant got some or all of their cash back - in other words the landlord was ruled against.
And just two years ago landlords with Houses in Multiple Occupation (which are often student lets) were forced to get mandatory licences, dependant on the property meeting certain requirements such as having a specific number of bathrooms, toilets and kitchens per tenant, meeting a certain standard. More cash to stump up.
Landlords have been bogged down with red tape over the last few years, on top of the existing rules and regulations, such as providing an annual gas safety certificate to tenants, buying fire-resistant furniture and making sure wiring is safe. So it comes as no surprise that the National Landlords Association (NLA) says it received a record number of calls from landlords seeking advice last year.
When times are good added legal requirements are simply an inconvenience and an added cost to landlords. But in an environment of falling capital values and expensive mortgage rates, is buy-to-let actually worth the hassle anymore? With tighter margins, can landlords afford to comply with the rules and regulations that come out on an annual basis, or is it time to sell up?
Yield of dreams?
Well, there are certainly some decent arguments for landlords staying in the market. According to Paragon Mortgages' latest buy-to-let survey, rental yields actually reached their highest level in two years in June, hitting 6.4% and topping 7% in Wales, the North and the North West. Not such a gloomy picture after all.
The survey also found that landlords' rental incomes have increased steadily over the past year, rising nearly 12%. Plus it claimed that property values have risen 7.5% year-on-year, although Paragon admitted that they rose by just 0.2% over the past six months.
The Association of Residential Letting Agents' (ARLA) Quarter 2 Review shows an average rate of return on investment from the cash purchase of investment property of 10%, and 20% for a geared purchase. These figures are based on a number of assumptions about average yield, loan-to-value (LTV) and capital appreciation, so should only be taken as a rule of thumb. But they are still a positive sign.
ARLA also claims that the average capital value of rented houses has fallen by 2.4% over the last three months (2.4% in prime central London, 1% in the rest of the South and 5.1% in the rest of the UK). Over the same period the value of rented flats throughout the country fell by 2.7% (3% in prime central London and 8.1% in the rest of the UK).
Plans to expand
So despite the regulatory hoops (which as a long-term tenant I wholeheartedly support), it seems that for the serious buy-to-let investor, the market is still attractive in many ways. Added compliance costs, plus the added mortgage costs are not enough to put off landlords who are still seeing a decent return on their investment. And with many first-time buyers currently terrified of the taking the plunge, tenant demand looks set to remain strong for the foreseeable future.
Just be aware that the capital value of your property may fall over the next couple of years, and the mortgage market might get worse.