How to Buy at Properties At Auction – A Tutorial
Friends,
I was recently asked to comment on the state of the rental market for a publication and spent some time gathering my thoughts on where we are, whats driving things, and what could be coming down the tracks over the next 12 months, see the question posed, and my commentary below.
Things are set to get much more expensive for the average individual/family in Q3/4 of this year and this will continue into next year – is the average landlord in a position to maintain rents at their current rates or do landlords have no choice but to increase them?
We work with Landlords across many tenant types, within our own portfolio we work with Tenants ranging from single family’s in receipt of universal credit in towns of industry like Port Talbot, through to white collar working families in London, and within D J Fatica Asset Management Ltd we assist portfolio landlord’s fund House renovation and conversion projects, as well as Houses of Multiple Occupancy (HMOs) providing housing to asylum seekers via housing charities, university students, blue collar & white collar workers.
The fundamentals of the market remain the same, demand is far outstripping supply. In South West Wales our portfolio saw a 20% bump in achieved rents (indicative figures:£410 – £495.00 and £550 – £625.00 on many of our 3 bed terraced houses) since the onset of the pandemic.
This is not isolated in the lower end of the market, Our latest conversion of a 3 into 4 bed house in Tooting has seen rents increase 14% from £3,500.00 to £4,000.00 per month. Equally room rents for quality housing in HMO’s are experiencing a similar outstripping of demand, with students for the Academic year commencing next month enquiring about our HMO stock.
Borrower client’s are reporting across the board that they are achieving rents in excess of the figures forecast at initial underwriting of each project, this is relatively short term as the period from underwriting to purchase is typically 4 weeks, refurbishments are delivered in as little as 3 months for a basic modernisation and as much as 6 for a more comprehensive structural conversion and extension in the HMO space. Office to residential conversions range from 9 – 18 months depending on scheme size.
This signifies that the market remains in a state of undersupply and this doesn’t look like its slowing.
Re: Interest Rate Rises
Rent rises are driven by the undersupply of good quality housing and multiple bidding parties when good quality safe accommodation becomes available.
But regarding landlord affordability, discounted teaser 2 and 5 year rates offered by some lenders remain around the 3-4% mark so far for Limited company buy to let, Landlords owning in their own name will have a slight discount on this rate, but there is news of landlords paying Early Redemption Fees to come away from products early and Re-Fix for a longer term to protect against run away rate rises, these fees ratchet down from as much as 5% at the start of a 5 year fix, to as little as 0.75% within the final 12 months of a fixed period.
The challenge comes for Landlords who are coming to the end of their fixed term and moving on to variable rates, which from even the most competitive lenders like Precise mortgages, are up around 5-6%. Another more specialist lender, Kensington, have recently offered a re-fix for 2 year period at 4.95% which in recent years is particularly high versus the 3-3.5% rates some were fixed at, albeit a HMO product that carries a higher premium than single family let products.
Good practice for Landlords is to stress test their current rentals at a rate of 6%, a historic norm pre-GFC, but we will soon see who’s been swimming naked in the tide of near 0% rates.
It’s clear we are heading into a slow down and a cash crunch will be in full flow come Q4 of this year.I don’t foresee this really kicking in until the new year when the increase in energy prices will be felt across the board.
What this means for markets where landlords pay utilities we will see, some markets tenants pay bills, others landlords pay up to a cap of X per month, it’s very specific to the local market.
I am keen to hear from you, the individual landlords, that are at the coalface of the market, does this line up with what you’re seeing in your Investment areas?
Kindest,
Dan & the Team