With the outlook for the housing market remaining unstable, the buy-to-let boom is offering some light relief for agents across the country. This boom, combined with a shortage in stock, means that many landlords have less choice and can end up purchasing properties that need work. This can be a great way to build a portfolio, however, many are doing so without fully realising what they are buying or that their investment could turn into a liability.
If you, as an agent, are working with your investor landlords to develop their portfolio, it makes sense for you to encourage them to take care with their choices and the associated expenditure.
Older properties may require a lot more than redecoration or a new bathroom. Many structural faults such as dry rot, rising damp and subsidence are not easily identifiable on viewing and could cost landlords tens of thousands of pounds to put right and months in lost revenue without a tenant. For example the Building Cost Information Service (BCIS) says significant damp could cost up to £28,000 to repair and prevent, while subsidence could cost around £24,000 to correct.
While it is not the role of the estate agent to highlight these issues to the buyer, at RICS we are advising agents to recommend to buyers that they request a Condition Report, Homebuyer Survey and Valuation or a Building Survey from a RICS accredited surveyor before completing on a property.
These surveys offer varying degrees of detail and deciding which one is relevant will depend on the condition and age of the property. The Condition Report provides a basic overview whilst the Homebuyer Survey and Valuation is most suitable for properties in a reasonable condition. For landlords looking to buy a property that is run down, has been extensively altered, or indeed if the landlord is planning a major conversion or renovation themselves than the Building Survey is the most relevant. Prices start from £200 for the Condition Report and £400 for the Homebuyer Survey and Valuation, the Building Survey will cost approximately £700.
This is a relatively small price to pay for the peace of mind that goes with it and can ensure landlords are not hit with any unforeseen costs, therefore maximising their investment in the property.
We are also advising letting agents to recommend landlords commission a condition report on their existing portfolios. This will help them to plan for future maintenance and seek advice about future regulatory requirements around energy performance. By carrying out these reports landlords can protect their portfolios and reduce the risk of lengthy void periods in the long term.
By recommending these surveys and commission reports, agents can protect and build relationships with existing and potential clients on both the sales and lettings. Rather than causing sales to fall through, surveys build a level of trust between the agent and the new landlord – a probable buyer and client in the future.
According to a study published in in March, over 50 per cent of landlords plan to buy more properties over the next six months. Therefore, agents providing new landlords with a positive experience may well see repeat business over the coming months.
ARE INVESTORS STILL KEEN ON BUY-TO-LET?
Yes, says the CML, the market is still growing. New buy-to-let lending in the first quarter of 2012 totalled £3.7 billion (32,300 loans), according to the Council of Mortgage Lenders. This was five per cent down on the fourth quarter of 2011. While 32 per cent higher than in the first quarter of 2011, buy-to-let lending is still only around a third of its 2007 levels.
Buy-to-let lending for house purchase in the first quarter fell by a greater amount (nine per cent) than remortgaging (one per cent), but both were around 30 per cent higher than in the first quarter of 2011. The buy-to-let sector continues to increase its share of the mortgage market, with buy-to-let mortgages representing an estimated 12.8 per cent of the total value of outstanding mortgages at the end of the first quarter, up from 12.6 per cent at the end of 2011 and 12.2 per cent at the end of the first quarter of 2011.
The total number of buy-to-let mortgages stands at just over 1.4 million, with a total value of £159.4 billion. The average maximum loan-to-value available from lenders on buy-to-let mortgages remained at 75 per cent in the first quarter of the year, with the average minimum rental cover 125 per cent – up from 123 per cent in the previous quarter, but otherwise the same as for nearly three years.
Residential surveyors are listed on the RICS website at: www.rics.org/findasurveyor.