Housing market battlefield for new landlords

sold houses

The price of buying property has rocketed in recent times, and lenders are lacking in confidence in what some are saying is an ‘over-inflated’ housing market. When house prices are at record levels it can be difficult for anyone to enter the housing market.

The valuation placed on a property to sell is partly based on house price projections. However, house purchases can be affected by the valuation for mortgage purposes, which doesn’t recognise the same factors, and can lead to a lower mortgage offer than expected. This is known as a down valuation.

Almost 400,000 sales were affected by down valuations lat year alone, with discrepancies of between £5,000 and £10,000 on average.

High demand for properties and down valuations has made it difficult for those without cash to enter the market, and some potential buy to let landlords have been unable to secure the properties they want to buy.

Demand for city properties in the UK is booming and property website, Zoopla, calculates that rents in July and August in cities excluding London rose at the fastest pace since the 2008 financial crisis.

Renting a home outside London now costs an average £790 per month – £38 per month more than a year ago, with an average increase of 5% per property. The biggest rise was in the South West, where rental costs rose an average 7.6% year on year. In the East Midlands the rise was 6.8% and in the North East 6.5%.

Zoopla points out that despite the huge rises in some UK cities, these are often the places where being a tenant is more affordable. A single employed person living in Wigan, for example, would spend an average 21% of their income on renting their home – compared to the UK average of 32% income.

Those already in the business of letting out property are enjoying the success of the pandemic response and growing demand for rental property, despite tougher tax legislation. However, the number of properties available for rent has fallen this year by 13%, and the total amount of money paid to landlords by renters has dropped by 8%, or just over £57 billion.

The number of private rented properties has been reduced due to the tax changes making it less attractive financially for landlords, as well as the increase in ‘staycations’ due to Covid which has increased demand for holiday lets. Investors have moved away from the private rented sector – sometimes to the staycation  or holiday sector, and sometimes investors are taking their money out of the property sector altogether.

Landlords may be enjoying higher returns on their investments at the moment, but shouldn’t take the market’s current buoyancy for granted.

Despite the huge competition for rental property, younger renters entering the rental market are not being replaced in the same numbers as those leaving. Many young people are instead choosing to take advantage of government incentives and record low interest rates to move directly onto the housing ladder.

These people might want to leave the parental shelter for independence, but they simply can’t afford the price of renting – choosing instead to save their money for a deposit and simply skip the rental stepping stone altogether.