The typical tenant demographic has also changed in recent years. Recent government data revealed that the number of households aged 65-plus who are renting privately increased by 38 per cent, while those renting privately who are aged between 35 and 44 increased by 21 per cent. The 16–34 age group increased by just 3 per cent.
The increase in renting among the older generations is partly due to deposits not being able to keep up with the pace of property price increases. Also, incomes are not achieving the income multiples required by lenders.
Lender Paragon added as part of the Hamptons report: “Just 14 per cent of those in the 45-64 age bracket have an annual income over £50,000, with a quarter earning less than £10,000 per year and a similar proportion earning between £30,000 and £50,000.”
If as predicted we continue to see landlords opt to sell, rent will only continue to increase as tenant demand grows and lack of stock continues to be an issue in the rental space, pushing more pressure on an already fragile housing market.
Some key considerations
For potential landlords looking to start investing in rental property, higher rentals might seem like the perfect opportunity. While this is certainly true, it is important to consider a few key things:
- Research — property is a long-term investment, so you want to ensure that you research similar properties in the areas to understand how much you could expect to let out a prospective property for. Speaking with a local letting agency that understands the market would be worthwhile, as well as learning about the demographics of the kind of tenants you are likely to attract.
- Costs versus potential return – as with any investment it is important to understand risks and reward. Buy-to-let offers two income avenues: the first is from rental, the second is from the capital growth in the property as the market increases. To benefit from the latter you should bear in mind that owning a property is a medium to long-term investment, meaning you need to ensure you factor in expenses, running costs, mortgage payments and rental voids.
- Property – you should break down how much investment is going to be needed to make the property lettable. While you can expect to move into a property for your own needs, letting a property needs to meet a certain requirement. The property needs to be lettable and attract tenants to ensure you can charge and receive your maximum potential rental income.
- Understanding your responsibility as a landlord will mean keeping on top of mandatory safety standards. To name a few: gas safety certificate, electrical installation condition report, deposit registration and fire safety. It is also worth keeping in mind future regulatory requirements. In England and Wales, you need to meet the minimum efficiency standard. It is illegal to rent out a property with an EPC rating of F or G — these are set to be upgraded to C in 2025 or 2028 for existing tenancies.
- Protection — while there are no legal requirements for a landlord to take out insurance, by putting a landlord-specific policy in place to protect the property you and your tenants will be worthwhile in the event that you are impacted by any unforeseen circumstances. Some policies will even pay in the event that your tenant misses their rental payments.
- Lastly, consider owning a buy-to-let through a limited company. Holding the property in a limited company will offer some tax benefits; for example, for those that are in a higher rate tax band.
The considerations mentioned are only a handful of things to note. It is important for a prospective investor to get advice from an experienced whole-of-market broker like John Charcol, who can help to ensure you get the right guidance.
Nicholas Mendes is a mortgage technical manager at John Charcol
