Which Properties Make the Most Money?

As a landlord it is important that you invest in the right property in the right area in order to minimise your void periods and maximise your income.

According to the latest research from Paragon in association with LandlordZone, HMOs produce the best yields at 7% followed by flats at 6.1%. This is followed by bungalows, terraced houses and semi-detached houses all at 5.9%, detached houses at 5.7% and flats that were individual units at 5.1%. There 800 landlords surveyed – some with one property and others with a portfolio with several.

It appeared that the larger the landlord’s portfolio the better the yield. In fact, those with 20 properties or more had a yield of 6.7% whilst those with one property had a yield of 4.2%. this demonstrates the importance of diversifying an investment portfolio.

In terms of landlords’ experiences of how Covid had impacted their business, just over 30% reported that they had experienced problems from the pandemic, but this wasn’t exclusively due to rent arrears. Rental income had been reduced the most by those who held a larger property portfolio.

The report also showed that terraced houses were the most popular property type among landlords with all portfolio sizes. This is followed by flats and semi-detached properties.

Larger portfolios enable landlords to invest in a broader range of property types and result in the best overall yields.

Talk to us at Newton Letting if you would like advice on the best properties to invest in and the rental returns you can expect to see in and around Glasgow.

Advice for New Landlords

In the last few months, we have seen growing demand for rental accommodation, along with a rising number of first-time landlords.

For those who have just started on their property investment journey, it can be daunting trying to keep up with the constantly evolving laws and regulations. However, with things starting to get back to normal these tips could help you to maintain some clarity surrounding your obligations as a landlord.

Obtain a license

Your starting point is to check whether you need a landlord license from your local council before your property can legally be rented out. This legislation was introduced in 2006 with the main purpose of ensuring landlords maintain their rental properties to an acceptable standard.

Furnished or unfurnished?

If you are renting out your property furnished, consider what items you want to include in the itinerary. Don’t let the property with anything valuable or sentimental and all upholstery just comply with the fire and furnishing act. If you are renting an apartment to students, you may find it easier to let with furniture as they are unlikely to have lots of belongings having just left home or previous digs, but if you have a house it’s likely that your tenants will be a family or couple and are more likely to have their own furniture, making an unfurnished property more appealing.

Fire safety

You are legally required to provide fire alarms on every floor of the property and carbon monoxide detectors in rooms where solid fuels are burnt. They need to be tested and in full working order and you will need to provide copies of the gas safety and electrical safety certificates to the tenants along with a copy of the EPC.

Tenants with pets

It’s worth deciding if you are comfortable renting to tenants with pets. With many more people with pets following the pandemic, there has been a rise in tenants seeking a property that will accommodate their new companion. By allowing pets you could have longer-term tenants, but this will need to be weighed up with the  wear and tear to the property they could cause or any disputes with neighbours should the pets be noisy.

Referencing

In order to protect your property and your rental income, it’s important that you rigorously reference new tenants to ensure they are reliable, have a good credit score with no rental payment defaults, and can make the rental payments each month. You will need to confirm that they have credit eligibility, employer checks are acceptable and that they have good landlord references. This is something a good letting agent will assist you with.

Tenancy Deposit Protection

Your tenants’ deposit must, by law, be protected in one of the Government-authorised Tenancy Deposit Protection schemes. There are three available – Deposit Protection Service (DPS), MyDeposits or the Tenancy Deposit Scheme (TDS). It will need to be placed in a scheme within 30 days of receipt and you will need to give the tenant the Deposit Protection Certificate and completed Prescribed Information. Failure to do so could result in you not being able to evict your tenant plus the full return of the deposit and a fine of up to three times the value of the deposit. Your letting agent can deal with this on your behalf.

EPC

Your tenants must have a copy of the Energy Performance Certificate (EPC). Your property must be at least EPC band E before letting it out and you could receive a fine if you try to arranging a new let without ensuring your property meets these standards.

Inspections

You should regularly inspect the property whilst adhering to all COVID-19 safety measures, and you will need the tenants’ permission in advance, and this should be stipulated in the tenancy agreement. Again, a good letting agent can carry out these checks for you.

Insurance

It’s essential that you inform your building insurer that you are renting the property out in order to maintain the validity of the policy as you will need specialist landlord insurance that will cover loss of rent, damage, legal expenses and liabilities.

Choose an agent

It’s vital that you are familiar with your role and responsibilities as a landlord before marketing your property. If you don’t comply with the rules and regulations from the very beginning of the tenancy, you may find yourself in a vulnerable position should anything go wrong. That’s why it’s essential that you choose an agent who can advise you on what you need to do and can help you vet tenants to ensure your property is in safe hands.

High Demand for Buy-to-Let Mortgages

According to a recent report from Paragon, buy-to-let business among mortgage brokers is currently at a seven-year high. In a survey of almost 200 intermediaries, over half confirmed that they were expecting higher levels of buy-to-let business in 2021 compared to last year, with 21% of those surveyed expecting an increase of 10% or more.

Indicating an upturn in optimism compared to 2020 when we saw the UK experience unprecedented circumstances as a result of the pandemic, 2021 looks to be a fruitful year for both landlords and mortgage brokers in terms of buy-to-let mortgage activity.

Demand for buy-to-let mortgages is currently high, with just under half of brokers stating that the current demand is strong or very strong. Only 12% of those surveyed stated that demand was weak – this is the lowest number since before the start of the pandemic.

Brokers have an excellent grasp of current demand and seem to be able to predict how things will go over the coming months. This high level of optimism could be, in part, due to the stamp duty/LBTT holiday that was introduced in June but with the tax break ending recently in Scotland, high demand in the buy-to-let mortage market is underpinned by the longer-term demand for rental homes.

Latest House Price Index

The latest data released by Halifax has revealed that on a monthly basis, house prices in March were 1.1% higher than the previous month and over Q1 of 2021, they 0.3% higher than in Q4 of 2020. Year-on-year, house prices were 6.5% higher than in March 2020.

There was a fairly subdued start to the year but in March the housing market saw a resurgence with prices 1% higher compared to the previous month. Back in March 2020, no one could have predicted how well the property market would fare given the backdrop of the pandemic. It is expected that the high levels of activity will be maintained over the coming months with consumer confidence given a boost by a successful vaccine programme and buyer demand for larger properties with outside space.

Buy-to-Let Mortgages Flood Back to the Market

According to recent figures from Moneyfacts, buy-to-let mortgages have flooded back to the market in March with over 200 new products launched. As of April 3rd, there were 2,333 mortgages available to landlords. This is the highest number since the start of the pandemic when many lenders withdrew their products, and 233 more than the previous month marking a rise for the fifth consecutive month.

However, two-year fixed rates are currently 0.28% higher than this time last year.

Buy-to-let mortgage availability has now recovered to 81% of its pre-pandemic levels. In the residential mortgage sector, we have seen a 68% recovery. According to Hamptons International, there are currently just under two million outstanding buy-to-let mortgages in the UK.

In 2016, a large number of mortgages were completed as landlords rushed to beat the 3% stamp duty rise and many of these will be looking to remortgage over the coming months as their five-year fixed deals will be coming to an end. These landlords won’t want to revert to their current lender’s standard variable rate, as it will be typically higher.

Landlords will also be looking to buy new properties and in Scotland recently took advantage of the LBTT deadline at the end of March, and across the rest of the UK will be looking to buy within the end of June stamp duty deadline.

In the final months of 2020, around 15% of property in the UK was purchased by investors, with almost half of all investor purchases funded via a mortgage. Taking advantage of the raft of new buy-to-let deals will be existing landlords looking to refinance and those considering property investment for the first time.

Against this backdrop of the rising number of deals, buy-to-let rates have continued to rise. According to Moneyfacts, the average two-year fixed rate is now 3.05%, which is 0.28% higher year-on-year and the highest average recorded since June 2019.

The average five-year fixed rate deal is currently 3.415, an increase of 0.17% compared to the same time last year.

There are signs that buy-to-let interest rates may be starting to fall for those buying with larger deposits, or those with a good amount of equity in their existing properties. For example, the average buy-to-let two-year fixed rate mortgage for those with 40% equity has fallen from 2.52% to 2.14% over the past month. Lenders have been wary of the effects of the pandemic on landlords as many tenants have been furloughed, leading to them withdrawing high loan-to-value lending.

At present, lenders require the landlord to demonstrate that their rental income will cover between 125% to 145% of the mortgage repayments.

Although mortgage rates were lower before the pandemic than they are now, they are still very low from a historical perspective and some experts feel that they are unlikely to drop further. Five-year fixed rates have been popular in recent years as there are less stringent stress tests on these deals, enabling borrowers to take out larger loans.