Who are the landlords who are housing our nation?

publication date: Oct 30, 2012
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books

Who are the landlords who are housing our nation?

Landlords are taking a bit of a battering at the moment. Most organisations and even some housing association officials accuse them of ‘ripping' off tenants, pricing out first time buyers and during the Olympics, kicking out tenants to take advantage of the ‘huge' rental returns supposedly available and homes being in a poor condition.

As with any sector, of course there are rogues, but typically a landlord is just a mum and dad partnership who have either ended up accidentally as landlords as they can't sell their property; have bought properties for their kids to ensure they have a roof over their head in the future; or to boost their pension after the financial sector failed to deliver.

According to various research reports on landlords, the typical landlord isn't a multi millionaire who is pricing first time buyers out of the market.

The main reasons for landlords investing in property according to ARLA are:-  
  • 40% as a ‘nest egg for the future'
  • 44% hoping for yield and capital appreciation
  • 1.3% investing for short term capital gain
Average number of properties a landlord owns
ARLA's latest Q3 stats show landlords have "7.7 properties in their portfolio with 41.2% having one or two properties, up from 39.8% last quarter, while 15.6% have more than 10 properties, slightly lower than three months ago (15.8%)."
Average void period
On average, most landlords' properties are empty for 2.9 weeks of the year, losing approximately 5.6% of annual rents. For example, if your rent is normally £500 per month x 12 = £6,000, the actual rent a landlord receives is £6,000*5.6% = £336, which is taken away from £6,000 - £336 = £5,664.

Average rental returns (yield) for an amateur landlord
The average landlord achieves a gross return of 5.2%. This is significant as in the future, when interest rates increase, mortgage rates could go back to 7% or more, meaning many amateur landlords would have to put cash into their portfolio unless rents rise and keep up with inflation.

Average gearing for landlords
ARLA's data suggests "Loan to Values (LTVs) for average landlords are approximately 46%. Almost a third of respondents (30.1%) estimate the loan to value ratio of their rented residential portfolio to be between 51% and 75%."

Most landlords aren't looking to increase their portfolios over the next few years, with less than 20% of them looking to expand, compared to 60% back in the crazy property purchase days of 2004 (see chart below).

Property Portfolio Comparison 2004-2012
Source: ARLA Q3 2012

In fact, ARLA's Q3 2012 figures suggest that many landlords aren't even renting their homes out for profit - more so from necessity. According to their figures, "the average proportion of ARLA members' offices' portfolios which are made up of investment property, has fallen from 56% to 51% over the last three months".

Professional landlords are different to amateur landlords however, and it's important to understand the difference. Paragon's data typically reflects more of the professional landlord sector:-  
  • Average number of properties a landlord owns
    The average landlord owned 12.7 properties in Q3 2012 and 14.3 in Q4 2011.    
  • Average void period
    For most landlords, the average annual void is 2.9 weeks.  
  • Average rental returns (yield) for a professional landlord
    According to Paragon, most professional landlords achieve a return of 6.6%. 
  • Average gearing for professional landlords
    Most professional landlords are not heavily geared and they own approximately 60%
    of their properties outright.
So, for policy makers, tenant organisations, landlords and tenants themselves, it's important to be aware that there isn't just ‘one type of landlord', in fact they divide into three main groups:-

Reluctant Landlords
According to ARLA, nearly half of their office stock is not investment landlords, but people's previous homes which they have rented out to help them move on when they couldn't sell their property. These landlords are likely to sell up within the next five years and from a tenant's perspective, will typically offer a less secure tenancy.

Investing for future returns
These are small scale landlords who invest for the long term, typically for their retirement or they hope to be able to pass on their gains to help their children through college and onto the property ladder. The investment landlords who bought well and can cope with 7% mortgage rates are likely to survive the next five to ten years, however those who would struggle to cover their costs at these levels may find themselves in a situation where they are forced to sell as soon as capital growth returns. As a tenant, it's important to make sure your landlord doesn't end up being repossessed, so do check they are up to date with the mortgage payments!

Professional Landlords
Professional landlords are typically more concerned about rental income than short term capital growth. Those who pride themselves on legally renting out properties, also manage their portfolios to ensure they are up to date with legal regulations and the asset maintains its value. As such, they are a better bet for tenants who want a secure future home to rent.

What to do about rogue landlords!
Many landlords let their properties legally, but there are rogues who ‘act' as professional landlords. The reality is these landlords exist because little action is being taken to close them down. Most rogue landlords can be easily found to be breaking the law and should be prosecuted by the local authority. Unfortunately, many are not touched due to a lack of local resources to prosecute as well as the issue that the local authority have no-where else to house people should the landlord's properties have to be taken off them.

Tenants and Landlords - get rid of rogues!
As the council have little resource to get rid of rogue landlords, it is helpful to them if you can report them. Any landlord who can't show you an Energy Performance Certificate at the time of viewing is breaking the law. Landlords who rent their properties without gas safety certificates or don't protect deposits in an independent scheme are also breaking the law. So if you don't want rogue landlords to operate in your area, make sure you report them to your local authority housing office.

For tenants looking to rent a legally let property, then why not sign up to Property Checklists for free renting a property checklist, ask us a question via our Forum or purchase our Tenant Service, for just £14.99 which includes a comprehensive A4 ‘how to' guide, containing Dos and Don'ts, Factsheets, Checklists, Handy Tips and Forms, PLUS access to Kate and her team, by phone and email, for any queries you might have during your rent.

For more help to ensure you buy and run a legally let Buy to Let property, request our free Buy to Let Checklist , ask us a question via our Forum or purchase our Buy to Let Service, which includes a comprehensive A4 ‘how to' guide, containing Dos and Don'ts, Factsheets, Checklists, Handy Tips and Forms, PLUS access to Kate and her team, by phone and email, for any queries you might have during your project.    

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