Record Rental Payments Take Up Half of Tenants’ Income

If you’re thinking about renting a property be prepared to surrender almost half of your take home pay or more.  Rents hit record levels in September and look set to rise even more as landlords hike up their rates.

Research has revealed that the average monthly rent rate rose by 1.6% in September alone taking the typical payment up to £890 a month.  This is making rents unaffordable to many across the country.

Rental asking prices have increased each month in 2011 with a total increase of 4.6% in the last 12 months.  This has added a whopping £468 onto the average annual rental bill.

Those living in London appear to be hit the worst.  Despite earnings being 41% more here than on average, the rents charged in London cancel out any benefits of a higher salary.  Average rents in London account for 76.3% of average earnings each month.  On average, landlords with rental property in London charge £2,075 a month whilst the typical London family brings in £2,721 in net monthly income.

By comparison, the best rental properties offering the best value are in Yorkshire.  Here average rents are only 35.2% of incomes.  With rental prices increasing at such an alarming rate it will be harder for UK families to afford to live in the areas in which they work or have family and friends.  It’s a catch 22 situation as many people choose to rent so that they can save for a deposit on their first property, but with little in the way of disposable income left for savings this is going to be very hard.

As a result of rental rises, many young professionals are starting to opt for flat shares in an attempt to save money on rent and put into a first home deposit.  Of course, it all depends on where you want to live or rather where you need to live.  If you can relocate to cheaper areas without any detriment to your working or personal life then this may be a good option to consider.

UK Rental Market Nearing Capacity

According to the Association of Residential Letting Agents (ARLA), the private property rental sector in the UK is close to capacity.

The number of new tenancies being released onto the rental market has been at record levels over the past year, but the private rental sector may finally be facing a challenge with meeting demand from tenants.

ARLA conducted a survey across 6,000 of its members in the UK and 74% of those questioned said there were more tenants than properties and that this deficit had reached the highest level since records began.  Demand has slowly continued to outstrip supply and has been that way for the past four quarters.  The problem is particularly acute in London and the South East.

The survey also shows that tenants are staying in their rented properties for much longer with most tenants staying in their properties for 19 months or more.  Tenants seem to be becoming more and more wary of the unstable housing market and choosing instead to ride out the unstable market conditions by renting property instead.

‘The UK cannot rely on the rental sector to support the housing market in perpetuity. The reality is that there is a finite amount of rental property and unless both housing supply and mortgage availability improves then renters will find that their options in the market are reduced,’ said Tim Hyatt, president of ARLA.

‘The Government is doing little to encourage landlords to invest in new properties therefore we are running out of quality stock to offer to tenants. This is reflected in rent increases and a lack of choice for consumers,’ he explained.

‘Within such an intensely competitive market, we would advise tenants and landlords to seek the best possible advice from agents as there will be those that seek to exploit this situation. Engaging with an ARLA licensed letting agent is one way to protect your assets guard against this and guard against unethical operators,’ he added.

Can I Rent Out My House in Secret?

If you are thinking about renting out your house then you could face an extra 1.5% of interest being added onto your mortgage rate and high administration charges.  That might make you wonder if you can get away with renting in secret.

Property transactions continue to slump and whilst some mortgage lenders are reducing their deposit criteria, many are still demanding large deposits in return for good deals.  This is making many homeowners consider renting to move, rather than selling up.

This process involves renting out your house so that you can rent another and gives owners a chance to ride out the slump and also avoid the high cost of moving home.  Unfortunately, the response from mortgage lenders has been fairly unsupportive in recent years.  Where once many mortgage lenders would grant a ‘consent to let’ and maybe charge a small admin fee, many now demand a significant rate hike in addition to larger administration fees.  It seems the mortgage lenders aren’t keen on the idea of renting rather than moving and with good reason from a business point of view.

So, back to the question – can you rent your home out on the quiet?  With many lenders forcing borrowers into expensive buy-to-let products and charging high fees it can be very tempting to rent without informing your mortgage lender.  However, according to the Council of Mortgage Lenders, you would be committing serious mortgage fraud.  Also, any tenancy agreement you draw up and agree with the tenant will be null and void should the mortgage company find out you are renting and wish to take matters further. There have been cases of tenants being served eviction notices for the next day and any agreement you have put in place will not be valid.

If you are serious about renting out your home for the foreseeable future then it’s very wise to tell your mortgage company. Not only will you sleep better at night, but you can also be sure you are operating in accordance with your mortgage agreement and tenancy law.  You will also need to advise your home insurance provider to ensure the right insurance is in place.

Rental Gold – Renting Out Your Property During the London Olympics

Holiday rentals aren’t just reserved to country cottages and beachside retreats.  If you have a property in London or the surrounding area then you could be in for some rental property opportunities during the Olympic 2012 season.  Thousands of tourists will be hitting our shores and with hotel rooms at a minimum or those that are left available at premium prices, these people will be looking for somewhere to stay.

If you have a flat or house available in Stratford or close to the Olympic Village then it could be a “nice little earner” for you next year.

But will your mortgage lender allow you to rent out your home or the rooms within?  Will you need special insurance?  What will demand be like?

Online holiday rental website Homeaway.co.uk predicts that many homeowners will use their website in order to cash in on the 2012 visitors.  Potentially, renting during this period could generate an average of £4500 over the 16 day-long event.  1 million visitors are predicted to visit from overseas destinations alone and this doesn’t factor in those travelling from other parts of the UK.

Let’s take a look at the mortgage issues when renting out your home to tourists.  A spokesman from the Council of Mortgage Lenders (CML), said: ‘If borrowers want to make any changes to their mortgage, because they want to rent out their property short term for example, they need to contact their lender to discuss the request as their contract is unlikely to cover this. ‘They would also need to contact their insurer as they would potentially not be covered in the event of a claim.’

One mortgage lender, Lloyds TSB said they would allow their customers to rent out rooms within their property or their whole property subject to a number of conditions.

A spokesman for Lloyds TSB, said: ‘If customers do wish to offer accommodation at the time of the Olympics, they can rent a maximum of two rooms to a maximum of two lodgers.  In this circumstance, we do ask that the customer let us know. In order to rent out their entire property to a tenant rather than a lodger, we require that this is done as an “assured short hold tenancy”, which protects the tenant, the homeowner, and the lender; the minimum legal time from for this arrangement, however, is six months. Customers should speak to their lender and consult legal advice if they are unsure of what action to take.’

Every mortgage lender is different so it’s important to contact your lender way ahead of time so that the necessary paperwork and arrangements can be made.  This will also ensure you have ample time to advertise your property for rent.

You will also need to arrange additional insurance. You’ll need to let your insurer know of your intentions as most standard buildings insurance won’t cover letting out your home and therefore won’t cover any loss or damage resulting from such an arrangement.  Even those living in flats and covered by their landlord’s insurance policy will need to seek additional advice and assistance.  It’s the worst case scenario, but if your house burns down and you don’t have the relevant insurance, your insurer will probably refuse to pay out.  Direct Line is one insurer launching temporary cover for its home insurance policies to ensure customers are clear on what is and is not covered if they do decide to rent their home out to Olympic tourists.

There is also the subject of tax.  If you want to rent a room whilst you stay in the property you can earn £4,250 tax-free.  However, if you are also cooking dinners, handling laundry or providing any other service then this will be seen as running a business and you will be subject to paying tax.  If the Inland Revenue suspects you are not declaring rental income whey may launch an inquiry and this can lead to substantial penalty charges.

If you think your property has good rental potential then this could be a great way of making some money in 2012.  Make sure you let all relevant parties know and choose a good website for advertising your rental property.

Buying a Property is Currently Cheaper Than Renting says Halifax

Falling property prices and low interest rates mean that buying a property today is over £100 a month cheaper for first time buyers than if they were to rent a property.

New research released by Halifax has shown that the average monthly mortgage cost of buying a two-bedroom flat is approximately £567 for a first-time buyer.  That’s £110 less than the rent paid on a property of comparable size in the same area.

The cost of entering the property market has fallen by around 40% since 2008. This is due to lower mortgage rates and a stagnant housing market.  In comparison, the price of renting a property has fallen a fraction of that amount and has actually started to rise over the past year.

Suren Thiru, housing economist at Halifax, said that the current economic climate is a good time to buy if you are a first-time buyer.

“The recent decline in the cost of buying a property for first-time buyers compared to renting has been substantial. and reflects the drop in both mortgage rates and house prices since 2008 as well as a marked increase in the average rent paid over the last year,” said Ms Thiru.

We’ve recently reported that more and more mortgage companies are releasing more products to attract first-time buyers and this combined with the existing low interest rate of 0.5% is making the market quite attractive to those looking to get on the property ladder.  Mortgages are now at their most affordable since 1999.

Ms Thiru also said that the gloomy state of the economy is putting many people off entering the property for the first time.

“While these affordability gains are welcome, conditions in the housing market for those looking to get onto the property ladder remain challenging,” she said.

It’s also worth pointing out that Halifax’s calculation does not include the deposit required to purchase a new property.  The average deposit required by first-time buyers is £27, 127.

Buy to Let may be the investment of choice, says Ed Mead

For the first time since I’ve been at Douglas & Gordon we made more money last month from lettings than we did from sales.

Given that we are a medium sized company that’s not as trite as it sounds. Renting seems to have finally lost it’s stigma and even seems to be where sensible people reckon they should be when property values appear to be on the way down.

Those who work in lettings have often felt, because of the lack of crash bang months, that the drip drip [albeit constant] nature of their income means they’re the poor cousins.

But with buy to let borrowing on the agenda again and with all the publicity surrounding Council tenants suddenly they’re front page news.   About time I reckon. Having rented for over 20 years and been dead pleased with it, many commentators were amazed and quick to point out how I was missing out on the market.  I politely replied that I had been investing in something slightly old fashioned and possibly more rewarding. It’s called your own company.

Such is the obsession with property (thank heavens as I’m an estate agent after all) that investing in something that actually yields jobs AND a return seems to have become a lost art.  With 70% of the world’s wealth now tied up with property it’s hardly surprising.

Perhaps with standard investments yielding derisory returns entrepreneurs might start to see the light of day again, but with residential rents looking set to rise sharply, capital values stagnant at best, and borrowing costs as low as they’ve ever been I would think buy to let might just become the investment of choice for a few years to come.

Author Biography

Ed Mead is a regular contributor to The Big Property List blog.  He has been an estate agent for over 30 years, and has been writing and commentating on the market for over half of that as the Sunday Times Property Expert and The Agent Provocateur for the Telegraph.  He sits on the Board of The Property Ombudsman Ltd, has a regular LBC slot, and is happy to say it as it is.

Other places you can find Ed online are:
Douglas & Gordon blog
Ed Mead on Twitter