Seismic change could be underway within a buy-to-let property market that has changed little over the past ten years. A financial squeeze is beginning to be felt by many landlords and September 2017’s rental yields were the joint-lowest (below 5%) since records began in 2001.
This market, which has boomed since 1996, when the mortgage requirement for a borrower to live in the house they were buying was lifted, is now being affected by a variety of factors.
This started with a three-percentage-point hike in Stamp Duty, back in 2016, for those buying second homes or buy-to-let properties. Landlords felt another blow to the pocket in April 2017, when the rules relating to writing off interest costs against income tax were tightened. Then, In November 2017, we saw the first rise in interest rates for 10 years.
Not all landlords are feeling the pinch in the same way, however. In Nottingham, landlords are experiencing the benefit of owning property within a university town that is also home to big employers such as Boots, Experian and E.ON. This all creates a healthy demand for rental property.
Nottingham and Liverpool are the UK’s joint top buy-to-let investment cities, in terms of rental yields, with third place going to Cardiff. The Welsh city is then followed by Southampton, Greater Manchester, Coventry, Edinburgh, Lancaster, Brighton & Hove and Bournemouth.
Whilst landlords in cities and university towns are likely to enjoy more stability than others, all should worry if rentals don’t keep up with mortgage costs. Any void periods, in which rental income is not earned, will also make landlords edgy and we are likely to see much more cost control by those buy-to-let landlords who need to make savings, in the coming year.
One area they could focus on is insurance and their buy-to-let insurance premiums. Landlords across the country are likely to be seeking out more competitive, but comprehensive buy-to-let insurance cover. Whether they are buying protection for residential or commercial properties, freehold or leasehold, or a single property or multi-property portfolio, will make little difference. The common denominator will be a quest for lower costs, for a comparative level of cover.
It would be a costly mistake to not have any buy-to-let insurance in place. Buy-to-let claims scenarios typically revolve around storms, burst pipes and break-ins, but there are also the risks of the property being damaged by acts of terrorism or terrorism-related raids. It is essential for landlords to have both buildings and contents cover, plus protection for possible loss of rent and the costs of alternative accommodation if the building is left uninhabitable.
Additionally, as the economy becomes more volatile, other insurance safety nets, such as tenant default protection and legal and compensation insurance cover (which will protect you should a tenant sue for injury), should not be ignored.
There is much food for thought within the world of buy-to-let property insurance as we head through 2018. If you need to know more about your insurance options, please get in touch.