With significant timing, the number of landlords in the private rented sector who have invested in Houses in Multiple Occupation (HMOs) has fallen sharply. This is revealed in the latest quarterly Review and Index published by the Association of Residential Letting Agents (ARLA).
The HMO share of the whole rental sector has dropped from nine percent to six percent over the last three months. This coincides with the requirement to register the properties with local authorities by last July and could represent a loss of as many as 75,000 properties to the multiple sharer market.
ARLA has expressed the hope that government recognises from these figures that regulation may be a two-edged sword. While aiming to safeguard tenants it can drive bona fide landlords out of the market very quickly. However, the Review shows that in the mainstream rental market, tenants are staying longer. Their average stay is now over 17 months, regardless of the initial term agreed. This increase in the length of tenancies continues a long-term upward trend. Among these tenants, more than half are under 30 and only 6% are over 50.
Landlords are satisfied with rental market conditions. 85% of all landlords responding to ARLA said they would not sell their investment properties even if house prices should fall, while more than half expect to add to their investment portfolios during the next year. On average, landlords say they intend to hold on to their investments for 16 years. This is in line with the results of ARLA surveys over the past three years.
Commented Adrian Turner, Chief Executive of ARLA: "This quarter's Review gives a clear warning of the dangers that can be posed by legislation in a marketplace. We all recognise that tenants of Houses in Multiple Occupation must be protected from bad landlords. However, if legislation is seen as over-burdensome it becomes a two-edged sword. This is because it is likely that it is those landlords who are prepared to stand up and be open about their properties and the way they manage them who are leaving the market. Meanwhile, the rogues are probably still in place, but crawling under the carpet where they will be difficult to trace".
For investors in the Private Rented Sector, the average return shown this quarter on an investment calculated over a minimum five year period is 11.15% for a cash purchase investment. This rises to 22.23% for a geared investment, where the mortgage starts at 75% loan to value. The 20 year average house price index stands at 8.66%.
The quarterly ARLA Review and Index of returns on buy to let investments is compiled from the results of the quarterly surveys of ARLA member letting agents and investor landlords who subscribe to the ARLA Buy to Let website. This is the largest survey of its kind and is undertaken with the support of the ARLA panel of Buy to Let Mortgage Lenders: Birmingham Midshires, GMAC Residential Funding, Mortgage Express, NatWest, Paragon Mortgages and The Mortgage Business. The data, which covers yields, rents, void periods, types of rental property and their regional differences was drawn this quarter from 451 letting offices run by ARLA member firms and 305 investor landlords. This is the largest survey of its kind in the rental market.
Full details of all ARLA surveys and the Review & Index can be found in the Buy To Let section of the ARLA web site.
