Landlords exploit softer market

According to the firm’s September Buy-to-Let Index, demand for rented accommodation is running at record levels, outstripping supply in all areas of the market.

The average price at which landlords purchased properties eased by 1.6 per cent in August, from £181,533 to £178,566, which followed eight uninterrupted months of price rises between November 2006 and July 2007.

Landlords are more experienced in negotiating down the price of a property than residential buyers and specialise in spotting under-valued locations appropriate for tenants.

The research further suggested that landlords plan to increase their portfolios by 5 per cent over the next 12 months, from 11.5 today to 12.1 properties. The average portfolio is expected to be worth £1.5 million in a year’s time.

John Heron, managing director of Paragon Mortgages, said: “Recent increases in borrowing costs, as a result of both the MPC’s successive rises in Bank base rate and of the current disruption in the wholesale financial markets, continue to deter people from committing to buying a home.

This feeds through to stronger demand for rented homes, with would-be home buyers competing for a limited supply of suitable rented accommodation with other categories of tenant who would not typically purchase – recent migrants, students, people on benefit.

“A slower housing market represents a buying opportunity for landlords, who remain confident in the future of buy-to-let in the knowledge that tenant demand will continue to rise as the number of households created outstrips the construction of new homes.Landlords take a long term view of the market, and know that over a five or ten year timeframe property values will rise, even if there were to be a correction over the short term.”

Indeed, this is borne out by the behaviour of landlords in many parts of the country. Steve Chippendale, a buy-to-let investor in Blackburn, Lancashire, reflected:

“There is significantly more competition among tenants in the area where I operate and in recent months landlords have been able to push rents up gently when negotiating a new tenancy.

“Following the recent rises in borrowing costs, owner-occupiers are understandably more reticent to purchase, which represents an excellent buying opportunity for buy-to-let landlords. With a reasonable deposit and careful choice of property, buy-to-let can still make good economic sense, but you do need a long term viewpoint.”

With over 90 per cent of buy-to-let loans arranged through intermediaries, mortgage advisers report that they are seeing a strong flow of business, with 21 per cent of their current business representing buy-to-let.