Findings from the latest BM Solutions/ BDRC Continental Landlord Panel research show that a greater proportion of landlords are turning to the private rental sector to supplement their monthly income.
As income levels remain stagnant and disposable income is squeezed, over 40 percent of respondents reported that they were using the rental income generated to support their monthly expenditure. This is a marked shift since 2011 where the majority of landlords turning to the rental sector did so to prepare their finances for retirement. This fell from 84 per cent percent in Q4 2012 to 78 per cent in Q1 2013.
Commenting on the findings of the research, Phil Rickards, Head of Sales at BM Solutions said; “The squeeze on spending does mean that we’re seeing more landlords using their rental income to supplement the cost of living. However, it’s important that those entering the market continue to see it at as long term investment as well as considering short term requirements.”
Planning for retirement
Of those single property and portfolio landlords surveyed, 78 percent view their property as a supplementary income to their pension, with 7 out of 10 of these landlords actively planning to live off the rental income during their retirement. Respondents highlighted the importance of a property investment to a landlord’s retirement provision, with property making up 62 percent of the average landlord’s retirement provision.
A further 4 in 10 intend to make a decision on their property portfolio dependent on the state of the property market once they reach retirement. Very few (4%) portfolio landlords plan to sell all properties in their portfolio when they reach retirement. Of the landlords who have previously looked at alternative retirement planning, such as fund investment, a large proportion said they selected the BTL market because they believe investing in property will produce a better return on their money. Other reasons include providing an income, acting as a long term investment and offsetting against a poor pension performance.
Increase in rental yields
Over the past quarter the average rental yield in the UK was 6.1 per cent. In comparison, the average rental yield was 6.2 per cent in Q4 2012, 6.7 per cent in and 5.9 per cent in Q4 2011. Over half (57 per cent) of landlords raising rents increased rents when new tenants arrived, and almost the same proportion (51 per cent) inferred the reason for raising the rent levels was to bring it in line with local prices. The strongest performing region was the North East achieving a return of 7.1 per cent; conversely the weakest area continues to be the Yorkshire and Humberside which report yields of 5.6 per cent.
Landlord portfolios
The proportion of landlords adding property to their portfolio in the last quarter has increased by 3 percent to 15 percent. However, landlords are becoming much more selective on what properties to add to their portfolio with the average number of properties being added increasing, from an average of 1.6 in Q4 2012 to 2.5 in Q1 2013. Looking forward to the next 12 months, just over 1 in 5 landlords plan to purchase at least one additional property.
Phil Rickards continues, “It’s good to see that landlords are still looking to add to their portfolios. It’s important to do your homework on Buy to Let in the same way that you would with any investment, being selective with your property choice isn’t a bad thing.”
Void periods
38 percent of landlords reported experiencing at least one void period in the past three months, an increase of 4 per cent on the previous quarter. Void periods were greatest in the North East and lowest in Central London. Two-thirds of landlords attributed the challenge of natural turnover and finding good tenants to replace those vacating properties as the most common reason for unplanned void periods.
Analysis reveals that the average tenant stays in the same property for approximately three years, with 1 in 10 staying in excess of five years.
