Given the barrage of negative legislative, tax and finance changes to hit landlords over the past couple of years, it’s little surprise that many buy-to-let investors are either selling up or choosing not to expand their portfolio. Surveys by the Residential Landlords Association and the National Landlords Association have consistently revealed that about 20 per cent of landlords are planning on selling at least one property due to the recent changes, and UK Finance reported “subdued house purchase activity by landlords since the middle of 2016” in its Mortgage Market Forecast for 2018. A
However, another trend is emerging and both sales and letting agents stand to benefit – if they happen to be in the right area. According to Kent Reliance’s Buy to Let Britain report, published in December last year, there is a “geographical swing taking place” among buy-to-let investors, with landlords shunning London and the South-East in favour of the North, where prices are lower and yields higher.
“Where London once led the way, it now lags behind. With an affordability ceiling reached, rents are rising fastest outside the capital, while total returns too are more attractive in areas like the North West. Tax changes are reducing net income, and more stringent mortgage finance criteria require investors to demonstrate higher yields,” says the report.
The number of landlords that we’ve registered in northern regions rose in 2017 versus 2016 and we also sold more properties to investors last year. Carrie Alliston, Hunters.
This chimes with the experience of many agents on the ground. Carrie Alliston, Head of Lettings for Hunters, says, “We’ve done some research in our branches and despite what happened in terms of regulation and the criteria that landlords have to meet, the number of landlords that we’ve registered in the northern regions increased in 2017 versus 2016. We also sold more properties to investors last year than we did in 2016.”
Charles McCosh, lettings and investment valuer at Rettie & Co in Edinburgh, has a similar take. “There definitely have been a lot of investors coming from the south to Scotland because yields tend to be better in Scotland.”
ATTRACTING THE OUT_OF_TOWNERS
While southern investors may be looking north, they may not be captured by agents’ usual marketing approach, says Ged McPartlin, Director at Manchester’s Ascend Properties. “For agencies looking to attract investors and landlords, marketing does require a slightly different tactic.
We have a solid PR strategy that allows us to bang the northern drum in key media titles, further demonstrating our knowledge of the sector. Ged McPartlin, Ascend Properties.
“We have a strong marketing strategy which includes our investment opportunities being marked as such on our website and key portals, so landlords can clearly see what yields/returns can be gained from any potential investment.
“Additionally, we have a solid PR strategy that allows us to bang the northern drum in key media titles, further demonstrating our knowledge of the sector.”
Sam Humphreys, Managing Director at Lime, a letting agent in Hull with a large number of non-local landlords, say his agency has a marketing strategy in place to attract more. “Using targeted digital marketing channels we can have a greater catchment area than just the Hull and East Yorkshire area.
“Targeted Facebook marketing ad campaigns are used to spread the word about Lime and attract the demographic most likely to be investors throughout the UK, using Facebook’s intelligent algorithms. Our Google Adwords strategy also helps us spread our wings to all areas of the country, opening up our premium personal service and unique marketing ideas to investors.
“Once signed up, landlords get regular blogs and property analysis via email to help them make informed decisions about their next investment opportunities.”
The agency also has a dedicated investments manager, Kim Matthews, who works full-time helping investors purchase property with a view to then taking that property onto its books. For a small sign-up fee of £150 – which is deducted from the initial letting fee once an investor puts a property on Lime’s books — she will undertake viewings and report back to potential buyers, and also sends out regular alerts about properties suitable for investors.
Matthews says part of her strategy is quickly responding to all new enquiries. “Many of the people from London will send enquiries to all agents and they will send us a message saying they are from out of town, they don’t know the location, do we know which areas would make good rental properties? That is when they are automatically put on to me and I try and get them to sign up to our service.”
FULL SERVICE APPEAL
Part of the reason the agency is happy to invest so much in attracting remote landlords, says Matthews, is because it means a higher percentage of their properties then go onto fully managed contracts. “I would say a good 60-70 per cent of our landlords are not from Hull so we have a lot of managed properties. “Usually if people are local they are quite happy to manage it themselves. But when you are living out of town it is very difficult to manage it yourself. This is better for us because we would rather have the fully managed properties than let-only properties.”
Most enquiries from south east landlords are what we call ‘chasing unicorns’ – they’ve been on a get-rich-quick course and expect massive yields. Howard King, Belvoir.
Howard King, Managing Director of the Belvoir franchises in Sunderland and Newcastle Central, says he also sees opportunities for good letting agents to win new managed business due to landlords becoming more discerning. “We’re seeing more landlords coming to us who are from out of the area who have owned their properties here for awhile and are just disillusioned with some of the service they’ve been receiving from other agents and the issues they are having with the properties.
“Landlords are now looking at every penny because with the tax changes and all the new regulations that have been brought in there are a lot of things being dumped onto landlords and they are starting to scrutinise things more.”
King also reports an increase in interest from potential new landlords from the south, although he says many have unrealistic expectations. “There have been a lot more enquiries from landlords, particularly from the south east, but the majority of them have been what we call ‘chasing unicorns’. They are expecting massive yields as they are expecting to maybe pick up a two or three bed terrace house and carve it up into a five bed HMO.”
King says he suspects many of these people have been on property courses. “I get people wanting to meet me and you can just tell straight away the simple business plan is to buy under market value properties, convert them into multiple occupancy and then look for 15 per centplus yields and I think it is coming from whoever is holding these courses down south. People are paying to go on these courses and being sold this get rich quick scheme. I must admit I am pretty cynical about it because you can see their expectations when they first come up and their surprise when you show them on the ground the reality.”
WEEDING OUT THE TIMEWASTERS
Matthews reports a similar phenomenon. “What I have noticed a lot over this past year is a lot of people coming to me have been on these property courses. A lot of them are trying to buy a property at a very, very low price and hoping to maybe spend £2,000 but then hoping to achieve something like £15,000 out of them. I think sometimes courses can make things look easy on paper but actually in reality it is a lot more difficult.
“I try not to sign anybody up who has those kinds of expectations because I don’t want to fail them. If I can’t deliver I can’t see the point. You can usually tell by the conversation in the first 10 minutes of the phone call.”
For letting agencies without the resources to provide a property finding service as Matthews does, there may be value in trying to set up relationships with those who act as property finders. David Lewis, associate at property finder Garrington in the North West, reports a rise in instructions for non-local clients and once those clients have acquired properties, he says they typically need agents to manage them. “As with all buyers looking towards any new area, a degree of hand-holding is required when introducing investors to the buy-to-let market in the North West. They want reassurance and in-depth knowledge about the area – and, of course, introductions to all the right letting agents.”
At Ascend Properties, McPartlin says he also works closely with specialist investment agencies to attract new landlords.
There is also potential for agencies with both sales and lettings divisions to adopt a co-ordinated approach to attracting investors, says Hunters’ Alliston. “Within our business every branch does lettings as well as sales so there is always one person or more that will know the rental potential of a sales property.
“Everyone who uses Hunters software – throughout Hunters has to put in a projected rental on a sales property, therefore giving a potential yield.
“So whenever someone is talking to a potential buyer about any type of property they can see what the potential is if bought to rent. We are always thinking about potential investors and everyone is taught within our training about yields and about what type of property can be good for letting.”
While there’s plenty of gloom and doom among investors, there are also some bright spots that agents in the right location could cash in on if they adopt the right strategy. And for a change that will certainly seem long overdue for many, the best location right now seems to be on the opposite side of the North-South divide than has typically been the case in the past.