Accidental landlords start to sell

David Smith,

Every housing recession creates accidental landlords, people who did not intend to let out a property, but find themselves doing so when they have to move but can’t sell.  This time more of them seem to have been created than usual.

Selling into a mortgage-starved market was at times impossible, even for those willing to take big price cuts.  Not only that, but letting was easier than in previous recessions.  Most estate agencies now have significant rental arms, which was not the case 20 years ago.

Some accidental landlords, having dipped their toe in, will carry on letting, particularly when interest rates look set to stay low for some time.  Others, however, will get out as soon as the going is good, and there is tentative evidence that this is beginning to happen.

One of the consequences of the rise in accidental landlording was a surplus of rental properties on the market and a fall in rents.  The latest lettings survey from the Royal Institution of Chartered Surveyors (RICS), out last week, shows that while rents are still falling, they are doing so at a slower rate.  A net 29% of surveyors reported falling rents in the latest three-month period, compared with 55% in the previous three months.

The rate at which homes are coming on to the market for rent is also easing; a net 6% of agents reported a rise in the latest three months, down from 21%.  Demand meanwhile, continues to rise.

Jeremy Leaf, of RICS, has noted this reduction.  “This is good news for landlords, who were coming under pressure to reduce rents as a result of oversupply,” he says.  “The need to respond in this way is easing and, providing the housing market holds fir, the outlook for the rental market should continue to improve.”

Does this also mean another change?  In the past few months a limited supply of properties for sale has put a floor under, and in some areas significantly lifted, prices.  If accidental landlords start selling in numbers, what is good for rents might be bad for prices.

We are note there yet.  So far the RICS findings suggest a slowdown in the number of homes coming onto the rental market, but not an actual drop.  Most potential sellers will probably hang on for a while, but in the meantime their sales will act as a drag on prices.

Go figure
Property prices increased by 0.8% in August, the fourth rise in the first eight months of this year, according to the Halifax.  This left prices 10.1% lower than in August 2008, but roughly back to the levels seen at the end of last year. But will the recovery prove sustainable?  Not necessarily, according to Jones Lang LaSalle, property advisers.  Its analysts predict the rally, caused largely by a shortage of stock, will soon run out of steam, with prices falling back again by about 7% next year; it will not be until 2012 that the market is on an upward path again, they believe.

Worried about keeping up with your mortgage payments?  They visit mortgagehelp.direct.gove.uk.  The new website is part of a nationwide campaign, launched last week by John Healey, the housing minister, that aims to help struggling home owners avoid repossession. (David Smith, The Sunday Times)

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1 Comment

  1. I send an email to David asking a question that I will summarize below.

    If there are accidental landlords this implies they found themselves in the business without any real intent. Mostly people who could not sell so they ended up renting their property. As David said they are renting the home they were once living in.

    Lets assume that people do decide to rent rather than sell. Further lets assume they are successful in finding a tenant. Owner moves out and tenant moves in. Just where is the owner going now that they are homeless.

    If I live in one house and I rent it out I either buy or rent a replacement. There is no net change in the supply and demand. I might move communities or move up/down the ladder. From a UK perspective the total number of households shows no change and the number of available rentals does not change.

    In my reply to David I asked if maybe the issue was agents who can not count or agents who are accurately reflecting what is happening in their market without knowing that in another market supply has moved in the opposite direction.

    Unless the UK population has contracted or there was a dramatic reduction in the need for new households (fewer divorces, more deaths, people doubling up) the shift described seems to have no way to increase the total UK supply of rentals.

    Comments?

    John Corey
    Follow me on Twitter -> http://www.twitter.com/john_corey
    http://www.ChelseaPrivateEquity.com


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