TSI
Research reveals lack of knowledge on returns and finance in buy to let
Almost a quarter of buy to let investors in the UK residential property market don’t keep track of the returns on their property portfolio, it is claimed. There is also considerable landlord confusion about the most accurate way of assessing their buy to let finances, according to new research from specialist firm Platinum Property Partners. It found that 23% of UK landlords do not measure the return on their buy to let investments at all and this means that £300 billion of investment in the sector is left unmonitored, leaving UK landlords unaware of the current or ongoing health of their property portfolio. Landlords owning Houses in Multiple Occupation (HMOs) for young professionals and key workers are the most likely to measure their portfolio, with 95% tracking the profitability of their property portfolios in some way. But landlords who let out holiday homes are least likely to assess the returns on their investment with 33% failing to measure the financial performance of their rental properties. Not only is there a significant failure among UK landlords to measure buy to let returns, but there is also a worrying lack of consensus about the most effective way to measure the performance of property portfolios, the firm says. Return on Investment is considered the most effective way to measure the performance of all investments, including property. For buy to let it is the only method to take into account gross profit, the cost of the property (including fees and refurbishment) and capital gain. Return on equity uses a similar calculation so can also be considered an effective measurement, according to the firm. However, just 21% of buy to let investors measure the performance of their investment using these methods and 56% of property investors use a less effective method to calculate the profitability of their portfolio, which means that £700 billion of buy to let investment is at risk of not being monitored accurately. The research suggests that not only are landlords using ineffective methods to calculate the performance of their property portfolio, but the vast majority do not fully understand the key financial terms. Just 24% of landlords understood the term ‘Return on Investment’. When asked to select the correct definition, 56% failed to do so while 20% were not sure. Landlords letting out flats were the least savvy about this type of financial measurement, with only 8% able to define this term correctly. Overall some 26% could accurately define ‘Gross Yield’ and the research found that landlords of HMOs for working tenants and holiday homes are the most clued up about the meaning of this term at 38% and 42% respectively. The research also found that just 12% knew what is meant by ‘Gross Profit’, with 73% of landlords incorrectly identifying the definition. Landlords with holiday homes were the most familiar with this measure with 25% understanding the term. However, even among those investors who correctly understand financial terms, there was no… Continue reading
House prices in prime central London market largely flat for last six months
Annual house price growth in prime central London declined marginally to 3.3% in March and this could be due to the forthcoming general election, according to a new analysis report. It was the sector’s lowest rate in more than five years and despite a 0.1% rise in March, prices have remained broadly flat over the last six months as uncertainty surrounding the outcome of the election on 07 May intensifies, says the report from real estate firm Knight Frank. ‘Activity is stronger in lower price brackets and where there is a more pressing need to act, though some parts of the market are treading water ahead of the vote and one of the most unpredictable elections in decades has caused some buyers and sellers to postpone decisions until there is clarity around the outcome,’ said Knight Frank associate Tom Bill. ‘As electioneering got underway in March, the polls still indicate a hung parliament is the most likely outcome. However, strong activity in some markets suggests there is a degree of pent-up demand that could be released after May,’ he added. The report says that the top three markets by sales volumes at the start of 2015 have been Knightsbridge, Islington and St John’s Wood. ‘Islington has benefited from the fact property taxes such as stamp duty have affected lower value properties to a lesser degree than higher value areas and annual growth of 7% is the second highest in prime central London after Hyde Park,’ explained Bill. He also pointed out that sales in Knightsbridge have been strong due to a series of high quality new build and newly refurbished properties that are ready for immediate occupation. ‘Buyers in prime central London are increasingly focussed on the quality of the property’s finish and facilities rather than its postcode, though in the case of Knightsbridge both have combined to produce a strong sales market at the start of 2015,’ said Bill. Meanwhile, St John’s Wood is benefiting as more buyers seek better value and more space than markets further south in central London. ‘While the overall picture is subdued, what is happening in these three markets highlights some key trends that could contribute towards driving the market after the general election,’ added Bill. Continue reading
Almost a quarter of UK landlords entered the business accidentally
Some 24% of UK landlords, that’s around 360,000, came into the residential private rental market accidentally or unintentionally, new research has found. The National Landlords Association (NLA) survey asked landlords why they first entered the buy to let market and found that 11% were by chance such as inheriting property. It also found that 5% acquired an extra property such as when they met a spouse or partner, 5% intended to sell a property but experienced difficulties and 3% had to relocate for work, either home or abroad. Central London was found to have the highest proportion of accidental landlords at 31%, followed by Wales at 29% and then the East of England and Yorkshire, both with 27%. The North West had the least with just 15% claiming to have got into the business unintentionally. The research also found that 30% of 10 landlords with a single property only break even or make a loss. ‘The figures show that there are a significant number of people who find themselves as landlords without ever having really planned to enter the market,’ said Carolyn Uphill, NLA chairman. ‘It may be surprising to find that so many single property landlords struggle to make it work, but we often find that this is because so many simply don’t realise what they’re getting themselves into. While a buy to let property can provide a steady return, you’re in business to provide a home for someone else so you need to know your obligations and make sure that you have a plan to make a success of it all,’ she explained. She pointed out that all landlords can sign up to the NLA for free to see how the organisation can help make a success of their business. The NLA offers free best practice tenancy agreements and other sample forms and letters which may be needed during the life cycle of a tenancy. Alternatively, enlisting the help of a letting agent is an option if you prefer a more hands off approach but just make sure they are a member of a reputable trade organisation such as the Association of Lettings Agents,’ added Uphill. Continue reading
