A lack of mortgages is pushing people towards the city’s rental sector. Tony McDonough reports

DESPITE the general downturn in the residential property market, the buy-to-let sector, it seems, is in good health.

Many people who are willing to buy their own homes are having difficulty obtaining mortgages and are having to rent instead.

In some parts of the country, it has been reported that demand for rented properties is outstripping supply, pushing rents up.

Add to this relatively low capital values, and it means that investors in the buy-to-let sector can potentially enjoy healthy returns.

One Liverpool lettings agent has this week described the market as phenomenal.

Earlier this week, the Association of Residential Letting Agents (ARLA) said there had been a surge in the number of landlords buying properties in the past 12 months.

It is reported that, in the North West, professional landlords have an average of 13 properties each, compared to around six in London and the South East.

Ian Potter, operations manager at ARLA, said: “Some towns across the UK are suitable for rental investment as they have a high number of students, while others – such as the recently unveiled Local Enterprise Zones – are areas being targeted for future growth.Š

“While it is a positive sign that landlords are continuing to purchase rental properties, this individual activity needs to be boosted by larger-scale investment.

“With demand still far outstripping supply, and home ownership out of reach for many, it is critical that more people have access to a home of their choice.”

In LDP Business a few weeks ago, Rob Farnham, the chief executive of Venmore, one of Liverpool’s oldest property firms, talked about the resurgence of the buy-to-let market in Merseyside.

He said banks were prepared to lend to investors already established in the lettings market.

Venmore’s property management arm looks after around 2,000 properties across Merseyside on behalf of landlords.

This week, the firm’s head of residential lettings, Darren Kay, said: “At the moment, the market in Liverpool is phenomenal.

“Demand is outstripping supply, but a few more properties have come onto the market so the situation is not as bad as it was last year.

“Stock levels have risen and we recorded a record month in June.”

Despite high demand for properties in Liverpool, Kay said that rental levels were not yet really being pushed up across the board.

He added: “It is a little strange. There are new developments in the city, like Mann Island, which are commanding higher rents, but that has meant the rents in some of the older properties have come down slightly.

“The student market is really strong. We have parents coming to see us who have children due to start university here.

“We are showing them two-bedroom apartments that in London might cost them upwards of £1,300 a month, whereas in Liverpool they would only pay around £600 to £650 a month.

“They are often amazed at that.”

Venmore’s main Liverpool rival, Sutton Kersh, also has around 2,000 properties on its lettings management books.

The firm’s Phil Lawton said landlords mainly fall into two categories – the professional investor and what he calls “reluctant landlords”.

He added: “Reluctant landlords are people who actually want to sell their property, but are having difficulty doing so in the current market, so they let it out instead.

“There is an element of risk but they are usually OK if they let out their properties through a letting agent.

“Problems can come when they don’t have any cash resources and they are depending on each month’s rent to pay the mortgage.”

Lawton says it is becoming a little easier to get money from banks for buy-to-let property investments, “as long as the figures stack up”. He added: “There are now more buy-to-let products coming onto the market.

“What the bank will want is a decent deposit and they will want to see that the monthly rent is greater than the mortgage repayment.

“There is a growing demand for good quality properties. Capital values are relatively low, interest rates are low and rents are rising.”

However, Todd Miller, who looks after lettings for Birkenhead-based agency Smith and Sons, takes a more cautious line.

The firm looks after around 2,500 properties and Miller believes rents may not go much higher than they are now.

He said: “Yes, you could say we are in a buoyant market at the moment. Rents are going up but think we may have just about reached the top of the market.

“The Government is trying to drive down the rents in social housing, so I think that is going to have an impact.

“I think the situation with the banks is improving but it is still early days and what is happening with the stock markets and the wider economy at the moment may have an impact.

“Certainly, an investor who already has knowledge of the buy-to-let market has a better chance of getting a loan.

“If you can offer maybe 20-30% of equity and your figures stack up, then you can get the finance.”

Miller backed up Phil Lawton’s comments about people entering the market without being sufficiently capitalised.

He added: “I think people should be very careful before they go into it.

“They also need to be very careful over the quality of tenants. It is essential now to get things like references and carry out credit checks on any potential tenant.”

Given the rising demand, ARLA wants the Government to look at ways of incentivising people to invest in buy-to-let properties but also called for greater regulation.

Ian Potter said: “It (the Government) needs to look at ways of regulating what is becoming an increasingly popular housing option, so that consumers and landlords are protected from issue such as loss of rent monies and deposits as well as defaults on mortgage and rental payments.” This is a view echoed by Richard Globe, who runs the Private Sector Landlord Business Support Group in Wirral.

Mr Globe has been involved with the industry for more than 40 years and says the need for regulation of both landlords and letting agents has never been more urgent.

He is particularly concerned about what Lawton referred to as “reluctant landlords”, and what he refers to as “accidental landlords”.

He believes such people are vulnerable to both “rogue” tenants and unscrupulous letting agents.

He said: “Because of the state of the property market at the moment, some homeowners who cannot sell up are having to rent out their properties to pay the mortgage.

“Often these people do not seek out professional advice and at the first sign of trouble they can make a hash of it.”

Globe wants the Government to consider the recommendations made in the 2008 Rugg Report into the residential lettings industry (see panel).