Rents are slowing in London. Time of year or the start of rents falling in Clapham?
Rent growth in London has slowed with annual growth of just 1.6% compared to 3.1% year on year in the rest of the UK, the latest index data shows. This comes to me as somewhat a surprise as London has always bucked the trends when it comes to housing - recovering quicker from crashes and outperforming other parts of the country. Latest data however shows otherwise. Let's look at some factors that could be causing this.
Are landlords selling up to feed the first time buyer market?
It may appear so. After various tax changes (stamp duty and the reduction of mortgage interest relief on rental income it may be a sign that "generation rent" is now slowly becoming "generation FTB" and taking advantage of various incentives to get on the ladder, slowing rental demand. Slowly and steadily though, while buy-to-let transactions have slowed in recent months, there is no evidence of a widespread sell-off by investors associated with the softening of the market. The National Landlords Agency (NLA) had predicted a major sell-off of 500,000 homes by landlords earlier this year due to imminent unfavourable tax changes. More signs that the attack on landlords is nothing more than a tax as it's not quite the "opening of the floodgates" that the media portrayed.
It could very well be that we are experiencing a lower ebb than usual, this simply because there wasn't the usual peak of rental prices in the summer time this year. Reason for that was the significant oversupply caused by the stamp duty increase on 1st April, so many investors moved rather quickly to beat this deadline and save a significant amount of money on stamp duty.
There is continuous talk of "rents can't go any higher" and "when will it stop" but the truth is that there are still plenty of people that are NOT spending a lot of money on rents. There are plenty of tenants that pay under the market rate because their landlord isn't treating their rental property as a business and set a lower than market rent because "they are good tenants." As landlords are facing increased tax bills, increased regulatory compliance costs, and now with the banning of agency fees for tenants on the horizon there will certainly be no other option but to put rents up. I feel that there is still a very long way to go before "rents are unaffordable."
All in all it would appear that London has taken the brunt of the tax changes, especially stamp duty, causing a little bit of disruption in the market. Although concerning as a London investor would expect rents to outperform the rest of the country I feel it's not a cause for concern.
How can I ensure I get the best rents?
A question I get asked rather frequently as you can imagine. Below a few pointers to make sure that you are able to make your letting as profitable as you can - and this doesn't always mean spending the most money on the best property in the best location.
- Make sure you are on top of repairs. It would amaze you to be a fly on the wall, but often tenants do think you are psychic. You should instantly feel it in your bones when something goes wrong in the property. Alas this isn't the case so the best thing to do is to draw out the repair requests. This will benefit you because the tenants will spend less time moaning among themselves that the places is crumbling around them and you will appear to be a responsive landlord.
- Winter - condensation issues. I have lost count the number of times I've been in a property and the tenants don't draw the curtains to let in some light or open the doors to improve ventilation. A condensation/mould no-no for sure. Sunlight kills mould, don't you know! You will have to explain that it's in the tenants' best interest to make sure that air is moving in the property to ensure their lungs stay healthy (and of course you don't want to have to redecorate every year). Heating is another key issue. I always recommend they change utility supplier to a more cost effective one once they come off the "standard rate." so they pay less for their utilities and can afford to heat the property effectively, again to reduce/eliminate damp/mould/smell.
- Ensure that you are firm but fair. Rent late? ask for standing order payments a specified number of days before the rent due date to allow for bank holidays, weekends and so forth. The contract should stipulate it's paid on the rent due date (i.e. it reaches you, the landlord, on the rent due date) so it's not unreasonable for them to make arrangements to get it to you on time, if this means it leaving their account a little earlier.
- Damages midway through the tenancy - it can happen that something gets broken during the tenancy. Remember that the tenants are your customers and pay you handsomely for the privilege of living in your property. If something happens accidentally it's important not to allow emotions to take hold. You can't, after all, expect the tenants to treat the property as well as you would yourself, you have to take some rough with the smooth. A football through the window will however require you to explain that although you'll organise the replacement the cost will be down to them.
- Refinance the property - if you have not remortgaged for some years it's likely that you will have reverted on to a "standard variable" <ahem ripoff> rate. To ensure you are paying the lowest monthly repayments for the amount borrowed you would be wise to see your broker. You may, as I found, be able to release money for reinvestment and STILL be paying less monthly!
- Make sure you have funds for repairs. Agents that manage residential properties are bound by their code of practice to keep a kitty for emergency repairs. Although there is no requirement for you as a landlord to do this, it does make sense. Of course the properties you let are a commercial enterprise, but don't forget to keep some money aside in order to pay for an emergency repair. Especially in the winter those expensive emergency <ahem boiler> repairs will rear their ugly heads!
- Make sure it suits. If your tenants are moving out you may be wise to offer them a slightly discounted rent in order to do some improvements around them (if possible). It's a good time of year to have a planned void, so if it's something like a kitchen or a bathroom that you want to replace it's probably best to leave the property empty. Winter is always the worst time of the year to be letting a property (demand is the lowest, see my previous article about seasonal rents here) so when you bring the property back to market the demand will be picking up, especially thanks to your improvements. Remember not to go cheap, go good value. White gloss kitchens, neutral tiles in the bathroom, etc etc.
In summary - offer the best product you can to command the best price. Repairs are costly. You can't eliminate them but you can reduce their cost by communicating with your tenants. This will reduce the number of hours and pound notes you spend on repairs and in turn increase their length of stay. Changeovers and repairs are costs. Reduce them in numbers for increased returns!
I hope of course that was useful, so I'll leave you with that to mull over. I have helped many investor landlords build profitable investments, so if you are interested in learning more about growing your investments wisely then do get in touch via email me: firstname.lastname@example.org or come down to the Clapham Property Meet and learn more about getting the best returns in the London property market.