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Landlords look to double buy-to-let portfolios

The Money Centre has revealed the results of its landlord survey for Q3 of 2005, which show a positive outlook for the buy-to-let market as landlords look to double the amount of properties in their portfolios this year.

On average, landlords are planning to purchase three properties in the next 12 months, compared to just two in the same survey last year. And their outlook for the property market in general is also positive.

An overwhelming 84% are confident that property values and rents will increase, compared to 62% last year, while the remaining 16% thought property values and rent would remain the same. Not one of those questioned predicted value or rent decreases this year.

Landlords expect the base rate to hover at 4.76% until 2010 compared to last year’s prediction of 5%. This outlook is influenced by the base rate cut earlier this year, which has helped landlords to grow their portfolios over recent months.

The average number of properties owned is up from seven in 2004 to 11 in Q3 of 2005, which equates to an average 57% increase in portfolio growth.

Those landlords with an average property worth of £101,000 – 200,000 is up from 54% in Q3 of 2004, to 64% this year. And with landlords also borrowing more than last year the average loan value is up from 51% to 53% this quarter. The average yield on rental properties has remained constant at 6%.

Mark Alexander, managing director of The Money Centre, says: “Landlords are upbeat about their buy-to-let portfolios and the property market in general. The market has stabilised and levelled out this year whereas last year there existed an air of uncertainty with landlords looking for security with flexible products.

“Now the market climate has changed, due to the decrease in the Bank of England base rate earlier this year. More competitive products have become available and landlords are now more interested in obtaining the best loan terms possible, allowing them to borrow the maximum available.

“This shows more landlords are pursuing the best strategy for successful investment, borrowing the maximum and investing as little personal finance as possible to make maximum returns in the buy-to-let market.”

The make-up of landlord’s portfolios is also changing. Fewer landlords are inclined to invest in flats this year, with a 6% decrease on last year. Houses are still the most popular investment choice, with an 8% increase in popularity meaning half of buy-to-let landlords looking to invest are after a house. Landlords are also increasingly looking to rent to professional tenants – 84% prefer this type of tenant, with just 8% of landlords preferring student tenants.

Alexander adds: “The fact that landlords now prefer to invest in houses for professional tenants proves the property market in the UK is becoming more European. First-time buyers continue to be priced out of the market, forcing them to rent good quality housing instead, and landlords are wisely capitalising on this and enhancing the returns on their buy-to-let investment.”

More landlords are now using a specialist broker to arrange financing of their portfolio. 84% of landlords now use a specialist broker compared to 71% in 2004. But while more landlords are using brokers, the number hiring a property manager is decreasing with landlords preferring to manage the properties themselves.

In 2004, 50% of landlords managed their own properties; this figure is now 64%. But the number joining their local landlords association is down, from 17% in 2004 to 8% in 2005.

Alexander says: “Experienced buy-to-let investors realise the worth of placing their investment in the hands of specialist, professional brokers, who are able to obtain the best loan deals for them and give guidance on releasing equity to further the development of their portfolio.

“The fact that more landlords now choose to manage the properties themselves may indicate that buy-to-let investors are embarking on investment as a full-time career. However, it does concern me that such a small percentage of landlords are a member of their landlords association.

“At The Money Centre, we would always guide our clients to becoming a member of their association, as they provide invaluable advice and support in the region in which landlords are investing.”

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