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UK rents rise everywhere barring London

Recent research carried out suggests that the rental market is developing in the UK.

We have seen in the UK an increase in prices of houses of 4.7% higher than the year up to September 2020, this was an increase from just 3% in August 2020, the average value of a home was £250,000 according to the Halifax. This same property price increase hasn’t been seen rising as quickly in London, however, it still has an average house price higher than anywhere else in the UK at £496,000. Renting rates across the UK have seen an average return increase equalling 1.4% during the year up to October 2020, according to the ONS (Office of National Statistics). 

However, London saw its most drastic decrease in private rental return growth since back in March 2017, by comparison slowing to 0.9% growth in the year to October, down from a 1.2% rise in September. So let’s buy a property and let it out now!……Hold your horses, have a think about what responsibilities and scenarios come with that.

Being a landlord is no easy thing though, before you go down that road have a think about these points

Security – Obtaining a Down Payment

Properties that are acquired for rental are viewed differently by lenders to owner-occupied ones and tighter approval thresholds are applied. You’ll need a minimum of 20% downpayment, you could finance this but lenders will protect their investments cautiously.

Ready to Hand Over the Keys?Finding the location for your rental

Can you obtain a rental in a thriving area, you don’t want to be without income and struggling for tenants. A city location or near to suburb might be the answer where there is population growth or perhaps there is a known demand due to work available. When considering your location think about schools in the area, consider the number and variety of local amenities. Bear in mind that while you might want shopping facilities and parks, other people might prefer restaurants and entertainment venues like cinemas or bowling. Low crime figures, public transport links and a vibrant job market will create a larger number of potential tenants.

Buy Outright or Finance?

If you can afford to buy your rental outright and then rent, that may be the most cost-efficient route. That may not be possible though and you may need to finance your rental. Think about the returns you need to make for this route to work. Your rental needs to be attractive to potential tenants against the competition. Today’s borrowing costs are currently relatively cheap but you’ll still need low repayment rates that won’t deplete your monthly income. 

Got What it Takes to Be a Landlord?

Are you a DIY’er, do you have your own toolbox? Would you be a hands-on landlord by repairing things or unblocking toilets? There are plenty of property management companies out there that will eat into your earnings/profits. Could be worth rethinking the prospect of being a landlord and looking at other options depending on your circumstances.

Think about Insurance for Landlords

Investment protection: Unfortunately tenants aren’t always dream customers so in addition to standard homeowners insurance, landlord insurance is available. This way of insuring your assets normally provides cover for property damage, lost rent and protection from liability if maintenance issues cause injury.

Unexpected Costs – think about the possibility

It’s not only preplanned maintenance costs that could divert your rental income. Keep a contingency fund, a pot with a reasonable sum available to help cover emergency costs to ensure you can speedily react to any unexpected issue your tenant may face helping you to retain a happy customer. Some of these issues may be insured but unexpected bills for repairs can be a shock

AgreementPurchase a Lower-Cost Property

More expensive homes produce greater ongoing expenses which will affect your bottom line. Higher-end properties can produce high yields but ensure you know what you’re getting into.

Know the Legal Obligations

As an owner of a rental property, you are obliged to familiarise yourself with the applicable laws in the UK. It’s imperative to be aware of and understand the latest legislation. The rules are complex and cover many aspects of your relationship with your tenant including rules on eviction, requirements on the lease, security deposits and the more you know, the less you need to worry about leaving to chance.

Consider Risk vs. Reward

Like every financial endeavour, you are taking a bit of a gamble on the likely return on your investment, weigh up the pros and cons of property investing for you and your circumstances.

Risks

  • If done correctly, rental income can be passive but tenants can easily become problematic, using a property management company can be an answer but this costs money.
  • Rental income may not cover your total mortgage payment.
  • Unlike stocks, you can’t instantly sell your property if you need access to your capital. Perhaps consider more liquid assets instead if you think you require more flexibility.
  • If you don’t have a tenant, you still need to pay all the expenses.

Rewards

  • If all goes well, your time is available to direct your energies in other directions.
  • Your rental property may increase in value, increasing your investment value and potentially allowing you to command more rental income.

Summary

Have realistic expectations of your renting experience. Most investments take a long time to mature and rental property isn’t going to be any different. Be prepared for a few anomalies along the way and think carefully about picking the right area and property style. 

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