London Houses for Rent

The Show is over. After Bradford & Bingley what now for buy-to-let.

Why has there been such a fuss about Bradford & Bingley - isn’t it just another failed bank?

Bradford & Bingley specialised in buy-to-let loans, which are now regarded as a risky business. As Gary Styles, economics director at the property data company Hometrack, explains: “It was absolutely a key player and it is difficult to see who is going to step in to take its place.”

So, is this the end of buy-to-let?

So far the signs suggest not: professional investors - the lucky souls who built up portfolios of five or more rental homes during the recent boom years and now have loads of equity - have been active in the auction rooms for months, snapping up bargains.
Related Links

• Buy-to-let: extra commission fees
• Is this the death of buy-to-let?
• Q&A: How will the buy-to-let market be affected?

Even smaller players are holding their nerve, even if few are in the mood to buy more homes now prices are falling. Jacqui Daly, an associate director of Savills, says: “There is a big contingent of buy-to-let investors who have invested to fund their retirement, sometimes with just one or two properties. I can’t see these guys exiting the market - and currently there is no evidence that they are.”

Can I still get a buy-to-let loan?

Yes, but you’ll have to work hard to find it. The website Moneyfacts.co.uk says that the number of deals being offered to buy-to-let investors has slumped by 85 per cent in the past turbulent year, to fewer than 500.

Ray Boulger, of the broker Charcol, says that Bradford & Bingley had “priced itself out of the market” in recent months - so in reality was offering few loans to borrowers. But the buy-to-let lenders who were still active responded quickly, by pulling deals or charging more. Boulger says: “HBOS has pushed up the cost of its buy-to-let deals and The Mortgage Works has pulled its rates and not issued its new ones.” Woolwich lifted its rates by as much as 0.5 percentage points on Wednesday. But Moneyfacts says that good deals remain: Cheltenham & Gloucester is offering a two-year fixed rate of 6.04 per cent - but you will need to pay 2 per cent and a further £99 in fees.

But higher rates don’t just affect buy-to-let investors . . .

No, but potentially they are more damaging. Boulger explains: “Some buy-to-let investors who may have qualified for a deal may find that they can’t achieve the required rental cover with the new more expensive rates. That may be particularly bad for those who are remortgaging and who can’t afford to put more cash in.”

Are more buy-to-let investors hurting than other borrowers?

For the moment, no. Bradford & Bingley’s much-reported buy-to-let bad debts seem to have arisen from its staggeringly imprudent lending decisions.

Some 12,100 (1.1 per cent) of the total 1.1 million buy-to-let loans outstanding are in arrears: this compares with 1.33 per cent of the 11.7 million loans that are held by owner-occupiers. Repossessions are running at 0.16 per cent of all loans, whether they are buy-to-let or owner-occupier, according to statistics from the Council for Mortgage Lenders .

But aren’t rents rising?

Rents have been on the up for two years, after stagnating for several years when buy-to-let investors piled in during the property boom. But, alas for investors, they have started to tail off again as economic woes set in. The hardest-hit areas are those with an oversupply, such as redeveloped city centres, particularly in the North (where Savills says that there are more distressed sales and that property values have dropped as much as 25 per cent in some cases). Savills says that rental returns on luxury London homes are now dropping for the first time in years.

Is demand falling?

The number of households is rising, but landlords fear that, now the UK economy is struggling, the influx of immigrants may reverse. But Jacqui Daly, of Savills, says: “This will be offset by first-time buyers, who now find they need to save deposits of 20 per cent to buy.” Hometrack says it is still 30 per cent cheaper to rent a home than buy, a mismatch that will encourage renters to stay put.

What about all those homes that won’t sell?

With prices 10 per cent lower than a year ago, many homeowners are choosing to rent out their homes, rather than sell at a loss. Many housebuilders are trying to get in on the act, too, which means more and more competition for tenants.

What’s the key to finding tenants now?

A grasp of the economic realities. Jane Ingram, of Savills’ letting division, puts it bluntly: “Everyone’s worried about money right now. The numbers of properties to let have increased. If you want to find tenants for any kind of property, you have to undercut the competition. Keen pricing and presentation are vital. The property has to be finished to a high standard.”

What level of makeover are you suggesting, exactly?

Pretty extensive. Simon Buhl Davis, who heads Savills’ interiors service, recommends the following measures: do a spring clean; hang mirrors to reflect light; maximise storage; create a fresh look by canny placement of flowers and fruit; and keep the garden tidy. He also also put special emphasis on the following: display the best possible photos of your property on websites; apply a fresh coat of paint to high-traffic areas such as hallways; regrout tiles on showers and put fresh mastic around the sides of baths; clear clutter (including post); get rid of smells without using overpowering air fresheners; and clean, clean, clean.

So, what can a letting agent do for me?

It depends on the level of service - and on the small print of the contract. A commission may be payable if your tenant stays on after the end of his agreement, even if the agent is no longer managing the property. This issue has been the subject of a recent ruling (see page 5). A basic letting service - where the agent finds tenants and takes deposits - should cost about 10 per cent of your rent. A full management contract (typically 15 per cent of rent) should cover repairs and maintenance.

Could I save money by sacking my agent?

Have you got the time and patience for such things as vetting the identity of prospective tenants, arranging an energy performance certificate and handling deposits? Do you live close enough to respond quickly? And can you do DIY? For advice on this and other aspects of being a landlord, Renting and Letting by Kate Faulkner, a new Which? guide, offers loads of advice (£10.99, www.which.co.uk ).

Are any parts of the market still booming?

The huge increase in the number of students at university is helping to keep the market for homes for them buoyant. The Government is worried about student ghettos springing up - and was talking this week about using the planning system to prevent this, but until then there are rich rewards in places such as Durham, Manchester and Hull, research from Paragon Mortgages indicates.

What about snapping up a bargain, like the big investors?

It’s possible - if you have access to cash, but be a tough negotiator. Stuart Law, of the investment firm Assetz, says that you will need about 30 per cent cash as a deposit to buy in the current climate. But, he says, “even then, you need to be able to negotiate another 20 or 30 per cent discount - on the current valuation, not last year’s. That way, you can count on a yield of 7 to 9 per cent, which means you can make the sums add up.”

Article written by Anne Ashworth and Judith Heywood

Technorati Tags: house, London, market, rental