Rising property prices have never been far from the headlines over the last couple of years. We’ve certainly see home buyers flocking to buy properties in Worcestershire. We’ve also a surge in home and landlord insurance quote requests following the lifting of lockdown restrictions. But with the rising cost of living, modern day record levels of inflation, and with the prospect of major rental legislation changes, is now the time to make property your business and invest in a buy-to-let property in Worcestershire?
In this latest blog from Coversure Redditch – the home of great quality and great value property insurance – we take a look at the Worcestershire housing market and factors currently impacting the private rented sector in a bid to answer that question.
Worcestershire Housing Market Update
The average sold price for properties in Worcestershire over the last 12 months, according to Zoopla, is currently £296, 531. This ranged from £149,962 for flats to £444,117 for a detached house. When we compare that to the UK average sold property price of £323,424, it would appear our region can offer good value for money, despite the double digit percentage price rise.
When buying to let though the yield a property can realise rather than the purchase cost is what’s at the fore-front of buyers’ minds. To work that out we need to look at what’s happening with rents in the Worcestershire area. The average rent in Worcestershire, according to one property search engine, is currently £910 pcm. Zoopla notes that the highest yield area in the West Midlands is currently the city of Stoke-on-Trent with an average gross yield of 6.63%. That’s nearly 75% more than the best savings account, according to Moneyfacts, where the highest savings interest rate is currently at 3.80%.
The key to becoming a profitable landlord is finding a property at the right price, with a good yield where there’s plenty of tenant demand and good prospects of continued house price growth, so a good long-term investment too. But once you’ve found the right property it’s likely you’ll need finance.
Financing a Buy to Let Mortgage
Buying a property to rent out, be that as a long-term rental or holiday-let is seen as riskier than buying a property to reside in hence a different type of mortgage is required. Buy-to-let mortgages typically incur higher fees or require more of a deposit than a standard residential mortgage while still demanding the borrower has a good credit rating. As with all lending, buy-to-let mortgage rates have been on the rise. According to one financial website, the average two and five year fixed rate mortgages are now at their highest level for a decade.
One new development in buy-to-let mortgages in recent years is the ‘Green Mortgage’. 2022 has seen the number of buy-to-let green mortgages rise considerably. Green mortgages can offer landlords more favourable terms – higher borrowing limits or better rates, for example. In return the property being mortgaged generally needs to have an EPC rating of band C or higher.
So, with rising house prices and mortgage rates lowering yields, is now the time to become a landlord? Here at Coversure Redditch we’re all about the insurance, not the financing, so we can’t give you any specific advise on that. But from talking to our existing landlord customers we do know that apart from the initial purchase and associated loan costs, there’s more that needs consideration when looking to become a landlord.
Considerations When Looking To Buy-to-Let
1. Property Maintenance – in order to privately rent a home in the UK, homes need to be safe to live in. So, some alterations may need to be made before a buy-to-let can be rented out, for example fitting smoke and carbon monoxide alarms at the very least. Privately-rented homes then need to be maintained. One recent survey suggests that maintenance costs for rental properties now consumes 1/5th of average rental income as the cost of materials rise. That represents a 4.7% rise since the start of 2022.
2. Legislation changes – as we discussed in our Rental Property Trends blog, changes to tax allowances have already made profit margins smaller for landlords and more legislative changes are on the horizon. While changes are still making their way through the parliamentary process, there’s no certainty of timings or details, but bills such as the Minimum Energy Performance and Renters Reform Bill, to name just two, could increase the responsibilities and costs for all landlords.
3. Landlord Insurance – while it’s not a legal requirement, renting a property without landlord insurance could prove unwise. Landlord insurance specifically protects you from the risks associated with owning rented property. Aside from providing the standard property covers like buildings and contents, it can include landlord-specific elements such as property owners’ liability, loss of rent, tenant default and alternative accommodation cover. Standard home insurance policies won’t give a landlord all the protection they may need, and some buy-to-let mortgage lenders may insist upon you having a policy in place.
How much a landlord insurance quote will be depends on several factors such as the value of the property, the type of tenant you have, its location, level of security, overall condition and rebuild costs to name just a few. If you have multiple properties, these could all be covered under one policy, saving on the admin but also potentially saving money too.
Becoming a landlord and privately renting out homes to tenants will provide a regular source of income so long as you have good tenant demand. A rental property can also provide a long-term investment so long as your property is in an area with steady house price growth. Doing your research is crucial to ensuring you find the right balance between the initial financial outlay, on-going maintenance and insurance costs and the potential rental income.
Is Now The Time To Become A Buy-To-Let Landlord In Worcestershire?
As the above clearly shows, this is a difficult question to answer definitively. What can be said for certain is that there remains a chronic shortage of rental properties in the UK. The number of rental properties on the market has almost halved over the past three years, according to new research from Propertymark, and Worcestershire hasn’t been immune to this supply shortage. Add to that the fact that the total population of Worcestershire has grown by 9.8% population growth in the last twenty years, according to the County Council, and you seem to have supply and demand factors suggesting it could be a good move. That said, interest rates are rising, as are the costs of maintaining a property so it’s a tough one to call.
Get Some Independent Landlord Insurance Help
Here at Coversure Redditch, we’ve been helping Worcestershire’s property owners get competitive landlord insurance cover for many years. If you are considering buying a property to let or have an existing portfolio of properties and would like some independent advice on your landlord insurance needs, then call Coversured Redditch on (01527) 757 585 or email us, and we’ll get back to you as soon as possible.
House prices in UK – sold prices and estimates – Zoopla
Home.co.uk: Worcestershire Market Rent Summary
Revealed: the 10 highest-yielding areas in the UK – Zoopla
Compare The Best UK Savings Accounts | moneyfacts.co.uk
Buy-to-let mortgage fixed rates highest for almost a decade | This is Money
Could a ‘green’ buy-to-let mortgage get you a better rate? | This is Money
Property maintenance now swallowing up a fifth of rental income | Property Reporter
Minimum Energy Performance of Buildings (No. 2) Bill – Parliamentary Bills – UK Parliament
A fairer private rented sector – GOV.UK (www.gov.uk)