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Landlords and the Buy to Let Market

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A recent report that was conducted by YouGov, YouGov’s Landlords and Mortgages 2013 report, has shown that landlord’s expectations of what their property will generate in terms of revenue is unrealistic. This is apparently due to the fact that they are underestimating a range of various costs. According to the report, the amount of landlords that see their properties as a short term investment is “at levels last seen before the financial crash”.

The whole report is in direct contradiction to many lenders who feel that the buy to let market is getting stronger since the financial crisis. Lenders believe that those who invested after the crisis were looking for long term results rather than quick gains which were the characteristic of the housing boom in 2007. YouGov are now reporting that these landlords had been relying on revenue that has since has not appeared.

YouGov are stating that landlord’s long term investments are in an overall decline even though rents are increasing. Between 2002 and 2006 landlords were receiving a rental income that gave them returns between four and six percent. Now these returns are averaging between one and four percent.

One of the reasons for weaker returns was due to the lack of research into the costs that come with being a landlord. The report states, “While 93 percent consider mortgage interest payments, only 68 percent take account of agency fees and 46 percent budget for other management expenses.” On top of these there are landlord insurance policies and maintenance costs that should be considered.

The buy to let market is growing and the amount of landlords is also growing, there are now around 1.5 million landlord mortgages which actually accounts for 13 percent of all lending. Although, this section of the market is growing while the rest of the housing market remains relatively weak. ‘Understand Landlords’ is a report by Strategic Society Centre which is a think tank and they have suggested that the private rented sector is driving up house prices which is making it hard for first time buyers to enter the market. The report said, “Private rented sector landlords have, on average, a more advantages background.” It also outlines measures that could be put in place to restrict landlords and enable tenants to get onto the property ladder. Although this is not solely down to the private rented sector, wages have not been increasing at the same rate as property prices which are a contributing factor to this situation.

Richard Lambert is from the National Landlords Association and he has fought back by saying, “Will anyone be surprised to learn that those who invest in property are wealthier than those who have not been able to buy? It’s the nature of a competitive market economy. Claiming that the private rented sector represents a transfer of wealth from tenants to landlords is like saying that pubs represent a transfer or wealth from drinkers to publicans.”

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